3Q CENTRAL BANKING: Russia Expected to Cut Rates, But With Caution

 
  By Andrey Ostroukh 
 

        The Bank of Russia is seen easing monetary policy further to drag the oil-dependent economy out of recession, but the pace of future rate cuts is likely to be measured for as long as the country suffers from double-digit inflation.
        After slashing interest rates for the fourth time this year, Russia's central bank warned that elevated inflationary risks limit the scope for further monetary easing.
        Russia is still living through burgeoning inflation, which was boosted last year by a rapid devaluation in the ruble as well as by Moscow's ban on food imports from countries that imposed economic sanctions on the country. Annual inflation was more than 15.5% in early June, flying high above the central bank's target of 4%.
        The latest cut of one percentage point in the middle of June took the central bank's key interest rate to 11.5%, bringing its total cuts so far this year to 5.5 percentage points. Still, the key rate remains above the 10.5% level it was at in early December, before an emergency increase to 17% that helped to stabilize the plummeting ruble.
        The central bank, which holds its next board meeting on July 31, is likely to trim rates again. But as the economy feels relief from a rate cut with a lag of several months, the potential for further monetary easing this year looks limited even though gross domestic product is expected to fall for the first time since 2009.
        The central bank now is also busy replenishing international reserves that fell to around $370 billion by mid-2015 from more than $500 billion in early 2014.
        --Write to Andrey Ostroukh at andrey.ostroukh@wsj.com
        (END) Dow Jones Newswires

        July 08, 2015 05:59 ET (09:59 GMT)

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