The Central Bank of Russia (CBR) is expected to cut its benchmark interest rate on Friday to its lowest level since the fall of the Soviet Union.
Bank Governor Elvira Nabiullina said last week that lower inflation across the first five months of the year has freed up space for the central bank to make further cuts, as it looks to shore up the economy in theEconomists are torn on the size of the reduction, with some expecting 50 basis points, bringing the rate to 5%. This equals a post-Soviet Union low reached in June 2010. Others anticipate a much more heavy-handed 100 basis point cut this time around.
After economic conditions seemingly bottomed out in April and began to rebound in May and June, stronger domestic inflationary pressures may return, according to Matthias Karabaczek, European analyst at the Economist Intelligence Unit. "The CBR will likely refrain from pushing real policy rates into negative territory, which suggests that the maximum rate cuts in the second half of the year would be a total of 150 basis points to 4%," Karabaczek told CNBC via email Monday.
"The inflation trajectory in the third quarter will also be crucial as most restrictions on economic activity will have been lifted by then, and we still expect inflation to slightly overshoot the CBR's 4% target this year.
Vladimir Tikhomirov, chief economist at BCS Financial Group, told CNBC that a lack of demand for new loans for investment meant the Russian economy was slowing even before the coronavirus pandemic, particularly in the export-driven sectors which constitute a significant portion of the Russian gross domestic product.
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