Russia's central bank trimmed Friday its key interest rate in line with its policy to gently invigorate the country's economy as inflation slows, but analysts called the quarter of a percentage point cut a cautious move as the United States moved to step up sanctions.
"The Bank of Russia Board of Directors decided to cut the key rate to 9.00 percent per annum," the bank said in a statement. The cut follows a half-point decrease in late April.
The board "notes that inflation is close to the target, inflation expectations keep declining, and economic activity is recovering," the bank said, adding that it will continue "moderately tough" monetary policy to keep inflation in line.
Annual inflation in May stood at 4.1 percent, inching down over the past months towards Russian government's target of four percent. Though Russians are in "savings behaviour patterns," the bank observed "signs of nascent recovery in consumer activity."
"The bank sees room for cutting the key rate in the second half of 2017," the regulator said, however adding that it is likely to maintain a tight monetary policy "for a long time to anchor inflation" due to "elevated" mid-term inflation risks.
"Slowing inflation to the level close to four percent is just the first, though very important step toward ensuring price stability," said central bank chief Elvira Nabiullina.
She added that the bank's moderately tight policy would be likely to continue for a year and a half to two years.
The cut was more cautious than expected, said economist Oleg Kuzmin of Renaissance Capital, and could be caused by concerns of future food price dynamics and a move by the United States to tighten sanctions on Russia.
The statement "struck a more cautious tone than most expected," echoed economist William Jackson of Capital Economics.
"The threat of tighter US sanctions may also have raised concerns about ruble weakness and higher inflation," he said, though expecting "sizeable easing" next year after inflation falls below the bank's inflation target.
US Senate on Thursday passed tough sanctions on Russia aiming to punish Moscow for interfering in last year's presidential vote and codifying previous sanctions over annexing the Crimea from Ukraine into law.
Among other risks for the Russian economy, which heavily relies on oil revenues, the bank predicts that oil prices "will return toward the level close to $40 a barrel" next year, said Nabiullina during a press-conference.
She said oil prices could be influenced by growth of production in the United States, China's slowing economy and growth of alternative energy production, though adding that Russia's economy "has already adapted to the low level of oil prices".
Russia's GDP grew 0.5 percent in the first quarter of 2017, its statistics agency said last month, slowly recovering from a crippling economic crisis in the wake of the crash of oil prices and international sanctions in 2014, which diminished people's purchasing power.
Nabiullina said she expected growth of 1.3 percent in the third quarter of 2017 and annual growth by up to 1.8 percent.
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