Russia’s central bank kept its key interest rate at 4.25 per cent on Friday, putting its monetary easing cycle on hold amid increased risks of fresh sanctions against Moscow, but indicated a rate cut was still possible later this year.
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 following a slide in the ruble linked to geopolitical developments.
“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.
Lower rates support the economy through cheaper lending but can also increase inflation, the central bank’s main remit, and make the ruble more vulnerable to external shocks.
“The recent reduction in the key rate will continue to support the economy this and next year,” the bank said.
Expectations for the bank to hold the key rate grew stronger after the ruble slid to a six-month low against the dollar and its weakest levels since 2016 versus the euro earlier this month.
The rouble was at 75.06 against the U.S. dollar after the rate decision, the same level as shortly before the announcement. The ruble also held against the euro, at 88.89 to the European Union currency. The British pound was at 97.48 to the ruble at this writing, and holding steady.
Inflation expectations of households and businesses remain elevated, the central bank said, even though annual inflation was close to 3.7 per cent as of Sept. 14, remaining below the central bank’s 4 per cent target.
Elvira Nabiullina, governor of the central bank, will shed more light on the central bank’s forecasts and monetary policy plans at an online news conference at 1200 GMT.
The next rate-setting meeting is scheduled for Oct. 23.