Russian Central Bank stabilizes interest rate

Russian Central Bank stabilizes interest rate

Russia’s central bank kept its key interest rate at 4.25% on Friday following a weakening in the rouble ahead of the U.S. presidential election, but said a rate cut was still possible in the coming months.

The decision to keep the rate at a record low was in line with a Reuters poll that forecast Russia would keep the cost of lending unchanged amid increased global market volatility.

"If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction at its upcoming meetings," the central bank said, repeating what it said after a previous rate meeting in September.

Lower rates support the economy through cheaper lending but can also increase inflation, the central bank’s main remit, and make the rouble more vulnerable to external shocks.

The central bank started cutting rates early this year when the economy took a hit from a plunge in prices for oil, Russia’s main export, and from the coronavirus pandemic and subsequent lockdowns that hit business activity.

The central bank said it had revised its 2020 economic contraction forecast to 4-5% from 4.5-5.5%, and said it now expected the economy to grow by 3-4% in 2021.

Inflation expectations of households and businesses remain elevated, the central bank said, even though annual inflation remains below the central bank’s 4% target.

The rouble showed limited reaction and traded at 76.36 against the U.S. dollar after the rate decision, Reuters reported.

The next meeting of the Board of Directors of the Central Bank, at which the key rate will be discussed, will be held on December 18, 2020.