Economy ministry expects rate cut to have moderate impact, sees room for further cut

MOSCOW. June 14 (Interfax) – The Central Bank of Russia’s decision on Friday to lower its key interest rate to 10.5% from 11% will have a positive, but “fairly moderate” impact on the economy, and there is still room for a further rate cut, a spokesman for the Economic Development Ministry told Interfax.

“This decision will have a positive impact, but a fairly moderate one in the current situation. We don’t expect a significant impact on the ruble’s exchange rate. We believe there is still potential for the reduction of the rate,” the spokesman said.

He said the ministry is maintaining its inflation forecast of 6.5% for 2016. The Central Bank has lowered its inflation forecast to 5%-6% from 6%-7%.

“The Economic Development Ministry is keeping the inflation forecast for 2016 in line with the baseline forecast [of 6.5%], which takes into account the pursuit of a moderately tight monetary policy by the Central Bank,” the spokesman said.

Asked about the ministry’s expectations for the key rate at the end of 2017 and whether the Central Bank’s target of bringing inflation down to 4% by the end of 2017 will be achieved, the spokesman said that what is “more important is not just the reduction inflation, but stabilization of inflation expectations at a steady low level.”

“Given the stabilization of inflation expectations, the key rate could be close to the inflation target,” he said.