BOFIT Viikkokatsaus / BOFIT Weekly Review 2019/31

Last Friday (Jul. 26), the Board of Directors of the Central Bank of Russia, as generally expected, decided to lower the key rate by 25 basis points to 7.25 % (effective July 29). Prior to CBR’s previous rate cut in June, the board had left the rate unchanged since the rate hikes in the latter half of 2018.

Like with its previous cut, the CBR noted that the move reflected slowing inflation and lower economic growth than expected. The CBR predicts consumer price inflation will slow from 4.6 % at the start of last week to 4 % in early 2020. If developments continue as the CBR forecasts, the CBR said it sees possible cutting the key rate further.

The CBR noted diminished inflation risks especially due to weak domestic and international demand. However, as earlier, the central bank paid attention to elevated inflation expectations, noting that increased government sector spending in the second half of this year could exacerbate inflation risks.

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