Russian central bank seen holding rates in July: Reuters poll

By Kira Zavyalova

MOSCOW (Reuters) – Russia’s central bank is expected to hold its main policy rate at 10.5 percent in July but cut it to 9 percent by year-end as inflation eases, a Reuters poll predicted on Thursday.

The central bank cut the key rate by 50 basis points in June, for the first time in almost a year, signaling confidence that inflation risks are declining and describing an economic recovery as “imminent”.

But a majority of the polled analysts expected the bank to be cautious at its next meeting on July 29. Out of 11 analysts who gave a rate view, 10 expected the bank to hold rates while one predicted a 50 basis point cut.

Alexander Isakov, economist at VTB Capital, said the central bank would need to take a pause because it has recently lowered its inflation forecast for the year by half a percentage point to 5-6 percent.

“That means that to achieve this more ambitious goal the Bank of Russia needs to maintain tough financial conditions,” he said. “All the more so as uncertainty on external markets has risen somewhat.”

Inflation was running at 7.3 percent in May. The polled analysts expect it to tick up slightly to 7.4 percent in June, because of seasonal factors, another reason for the central bank to hold off from further policy easing for now.

Analysts nevertheless expected to see more rate cuts this year, with the central bank rate projected to fall to 10 percent in the third quarter and to 9 percent by the end of the year.

They have become more optimistic on inflation, seeing it ending the year at 6.5 percent compared with an end-year forecast of 7.0 percent in the previous month’s poll.

Nordea economist Dmitry Savchenko said Russia’s decision to ease an embargo on food products from Turkey was one factor likely to help ease inflationary pressure.

The poll predicted gross domestic product would contract by 0.6 percent in 2016, the same forecast as in the previous monthly poll, when economists had significantly improved their growth forecasts.

They see the economy growing by 1.2 percent in 2017, slightly up on the May poll’s forecast of 1.1. percent.

The poll predicted relative stability for the rouble, seeing it worth 65 rubles per dollar in one and three months, and 64 rubles per dollar in six and 12 months. The rouble was worth 64.4 per dollar on Thursday.

(Writing by Jason Bush; editing by Jason Neely)