Bank of Russia may lower key rate in late 2019 — Russian Direct Investment Fund

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MOSCOW, February 8. /TASS/. The Russian Direct Investment Fund (RDIF) expects that the Bank of Russia may lower its key rate by 25-50 basis points at the end of this year, if inflation remains with the range set in the forecast. That is according to the review of Dmitry Polevoy, chief economist of the Russian Direct Investment Fund (RDIF). The review was released after a meeting of the Board of Directors of the Bank of Russia on Friday.

The analyst expects that inflation will peak in the second quarter of 2019 at around 5.8%, then decline to 4.7-4.9% and stabilize at 3.8-4% by 2020.

“That is why, there is a possibility of reducing the key rate by 25 basis points or even 50 basis points in September-December this year, if inflation remains within the forecast,” the expert noted.

“At the moment, the Bank of Russia has taken a wait-and-see attitude, considering that the effect of the VAT increase on inflation will become clearer by April 2019,” he added.

On 8 February, the Bank of Russia expectedly kept the key rate at the level of 7.75% per annum.

When commenting its decision the regulator noted that in January 2019, annual inflation (55) was at the lower bound of the Bank of Russia expectations, while the contribution of the VAT increase to annual consumer price growth in January was moderate.

The effect of the VAT increase on inflation can be fully assessed no sooner than this April, the regulator said. The bank of Russia noted that it will make decisions on the key rate, assessing the sufficiency of the rate increase last year.

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