The Bank of Russia said inflation risks would hinder further monetary easing after it cut its key interest rate for the fourth time this year to counter a recession.
The one-week auction rate was cut by 1 percentage point to 11.5 percent, the central bank said in a statement on its Web site yesterday.
Twenty-one of 35 economists in a Bloomberg survey predicted the move, with other forecasts ranging from a reduction of 150 basis points to a 50 basis-point cut.
The central bank is adjusting its stance after delivering the smallest rate decrease since March as price growth remains almost fourfold its mid-term target of 4 percent.
With a range of risks clouding the inflation outlook, rate setters have less leeway to offer relief to an economy battered by its first recession in six years.
“The Bank of Russia will be ready to continue cutting the key rate as consumer-price growth declines further,” policymakers said in the statement. “The potential of monetary policy easing will be limited by inflation risks in the next few months.”
The central bank followed a cut of 2 percentage points in January with decreases of 100 and 150 basis points at its meetings in March and April.
Derivatives traders have also scaled back their bets on a decline in borrowing costs.
Forward-rate agreements are signaling 45 basis points of decreases in the next three months, the least this year.
While Bank of Russia Governor Elvira Nabiullina has said that inflation is “under control,” she has argued against a faster rollback of last year’s emergency increase that brought the benchmark to 17 percent.
The central bank yesterday said that inflation risks stem from a possible deterioration of external economic conditions, looser fiscal policy, high inflation expectations and changes in the adjustment of state-regulated tariffs and prices planned for next year and 2017.
Inflation, which soared to a 13-year high of 16.9 percent in March from the previous year, eased to 15.8 percent last month.
The central bank said that it estimated price growth at 15.6 percent as of Monday last week.
It also forecast that the economy would shrink 3.2 percent this year, compared with an earlier forecast for a contraction of as much as 4 percent.
After a 1.9 percent decline in the first three months, GDP is expected to contract about 4 percent in the second and third quarters, according to Bloomberg surveys.
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