Russia Slows Easing Pace as Ruble Thwarts Deeper Rate Cuts

The Bank of Russia cut its key interest rate for the fourth time this year, delivering the smallest decrease since March to keep a lid on currency and inflation risks.

The one-week auction rate was cut by one percentage point to 11.5 percent, the central bank said in a statement on its website Monday. Twenty-one of 35 economists in a Bloomberg survey predicted the move, with eight seeing a reduction of 150 basis points and five forecasting a 50 basis-point cut. Another analyst saw a decrease of 75 basis points. Policy makers will hold a news conference later in the day.

The central bank is putting a brake on an easing cycle that started almost five months ago and reflects pressure on the ruble, which has lost more than 6 percent since a rate decrease in April. While Governor Elvira Nabiullina has said that inflation is “under control,” she’s argued against a faster rollback of last year’s emergency increase that brought the benchmark to 17 percent, as the ruble’s rally stumbled when the central bank began buying foreign currency in May to rebuild its reserves.

“The Bank of Russia will be ready to continue cutting the key rate as consumer-price growth declines further,” policy makers 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 two percentage points in January with decreases of 100 and 150 basis points at its meetings in March and April.

Reserves Push

The Bank of Russia plans to boost reserves to $500 billion in the coming years, a policy it’s defended as compatible with a free-floating exchange rate.

The ruble has strengthened about 10 percent against the dollar this year after losing almost half its value in 2014. It traded 0.5 percent weaker at 55.0650 to the dollar as of 1:35 p.m. in Moscow.

“The exchange rate looks less supportive for considerable policy easing than a month ago,” Oleg Kouzmin, a former central bank adviser who’s now an economist at Renaissance Capital in Moscow, said by e-mail before the decision. “The goal to restore reserves could increase potential inflation risks and thus require a tighter monetary policy stance.”


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.