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Business & Finance

Russia keeps key rate at record low of 4.25pc

  • 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.
18 Dec, 2020

MOSCOW: Russia's central bank kept its key interest rate at a record low of 4.25pc on Friday following a recent jump in inflation, but said it would consider if there was potential for lower rates.

The decision to leave the rate unchanged was in line with a Reuters poll that forecast Russia would keep the cost of lending at its current level due to a rise in consumer prices after a slide in the rouble.

"Given the high heterogeneity of current economic and price movement trends, the Bank of Russia will assess the subsequent developments and the existence of a potential for additional key rate reduction," 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 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.

Fallout from the coronavirus pandemic and lockdowns that hurt business activity have also buffeted the economy.

The central bank said it had revised its 2020, economic contraction forecast to around 4pc from 4-5pc.

Economic growth in the medium term will be "influenced by further coronavirus pandemic developments in Russia and across the globe, the nature of the recovery of private demand in the context of potential change in consumer and business behaviour, as well as by the upcoming budget consolidation," it said.

Annual inflation reached 4.7pc as of Dec. 14, above the 4pc target, the central bank said, pointing out that inflation expectations of households and businesses had increased.

The rouble did not react much and traded at 73.54 against the U.S. dollar after the rate decision.

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 Feb. 12.

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