MOSCOW (Reuters) – Russia’s central bank will consider cutting its key rate by 100 basis points in June, its governor Elvira Nabiullina said on Friday, opening the door for a bigger cut than the market had expected as the country battles the new coronavirus.
Russia faces a deep economic contraction this year as the coronavirus outbreak and lockdowns suffocate business activity, prompting the bank to pledge more cuts to the cost of lending after reducing its key rate to 5.5% from 6% on April 24.
“If the situation develops like it is at this time, the option to lower by 100 basis points will be definitely considered among other alternatives,” Nabiullina said about the Bank of Russia’s board meeting scheduled for June 19.
That would take the key rate to 4.5% <RUCBIR=ECI>, a level economists only expected to be reached in late 2020, according to a Reuters poll published on April 30.
Nabiullina said gross domestic product (GDP) could shrink by 8% in the second quarter from a year earlier. A partial recovery in activity is possible in the third quarter if lockdown measures are eased in June, the central bank said this week.
The number of coronavirus cases in Russia jumped 10,699 over the past 24 hours to reach 187,859 as of Friday, the fifth-highest total in the world.
Nabiullina said about 100 central bank employees had been diagnosed with the new coronavirus, mostly in Moscow.
Speaking about the banking sector, Nabiullina said Russian lenders would see a decline in profits in 2020 because bad loans are likely to peak either in the second half of this year or in early 2021.
Nabiullina said there had been a spike in demand for cash ahead of lockdown measures introduced in last March but money markets had since returned to normal.
To further support the banking system, the central bank said it would inject more liquidity through a one-month repo auction in late May and a one-year repo auction in late June.
Nabiullina also said she would hold her next online media conference on May 22.
(Writing by Andrey Ostroukh; Additional reporting by Elena Fabrichnaya, Darya Korsunskaya and Alexander Marrow; Editing by Mark Heinrich and David Clarke)