Russia cuts key rate to boost struggling economy

MOSCOW: Russia´s central bank cut its key rate Friday for the first time in six months and said more cuts were coming, offering a welcome boost to the country´s struggling economy.

Falling inflation gave the central bank the leeway to shave a quarter-point off its headline rate and to promise more easing down the road.

The central bank announced the cut to 9.75 percent from 10 percent after a regular monetary policy meeting.

Russia´s economic activity is in sore need of a boost as it struggles to emerge from two years of recession caused by the slump in oil prices and Western sanctions imposed over Moscow´s actions in Ukraine. The central bank last cut its interest rate in September, by half a percentage point to 10 percent.

Friday´s move came as the "inflation slowdown overshoots the forecast, inflation expectations continue to decline and economic activity recovers," the central bank said. It said inflation had dropped to 4.3 percent from 5 percent in January.

"Inflation risks have slightly dropped but remain elevated. In these circumstances, given the moderately tight monetary policy, the 4 percent inflation target will be achieved by the end of 2017," the central bank said.

It said it was considering "the possibility of cutting the key rate gradually" in the second and third quarters.

Previous to Friday´s meeting, many economists had expected the status quo to continue while others had predicted a softening of the very restrictive monetary policy followed by the central bank since the ruble collapsed at the end of 2014.

William Jackson, Senior Emerging Markets Economist at Capital Economics, said falling inflation and a stronger ruble mean that Russia´s easing cycle "has much further to run". Jackson himself had even predicted a 0.5 point reduction at Friday´s central bank meeting.

Inflation was set to fall further "and more quickly than the central bank anticipates," Jackson said. "That should provide substantial room for further easing."

The ruble rose against the dollar after the rate move, trading at 57.10 against the greenback around 1200 GMT, compared to 57.40 just before the cut.

A number of key indicators have improved recently, favouring easier credit, especially inflation, which is now approaching the central bank´s four-percent target for this year.

The central bank also said "the pace of economic recovery is higher than expected".

It said it expected GDP to grow by 1.5 percent this year after contracting 0.2 percent in 2016 and 2.8 percent in 2015.