Russia returns to monetary easing, signals two more rate cuts this year

Bloomberg

Russia’s central bank shifted solidly to monetary easing, saying first interest rate cut in more than a year could be followed by two more in 2019, as inflation slows and growth sputters.
The move makes Russia the latest emerging market to shift towards more dovish policy as escalating trade woes weigh on growth. The change in trajectory of interest rates in developed economies reduces the risk of persistent outflows from emerging markets, the Bank of Russia said in a statement.
“One or even two more rate cuts are possible this year if the situation develops according to our base-case scenario and there are no negative surprises,” central bank Governor Elvira Nabiullina said.
The key rate was cut to 7.50 percent from 7.75 percent. That matched 33 forecasts in a Bloomberg survey, while two economists expected no change. Another rate reduction could come within the next three meetings, Nabiullina said.
Chile and India also lowered their benchmark rates recently and other central banks will likely follow if the Federal Reserve signals a shift to easing.
The ruble extended gains and 10-year government bond yields retreated 6 basis points to 7.64 percent as investors cheered the prospect of more rate cuts and slower inflation. Ruble bonds, known as OFZs, have already handed carry traders some of the best returns in emerging markets this year.
“The central bank definitely wanted to signal that it is joining global monetary easing trend,” said Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki. “We see more flows into OFZs given the current rate and inflation outlook.”
Annual inflation decelerated for a third month in June, reaching 5 percent as of June 10, the central bank said.
Price growth will slow to 4.2 percent-4.7 percent by the end of the year, according to a statement, which cited weak consumer demand and ruble strength.