Russia's central bank slashed its key interest rate for a second successive policy session and suggested that more reductions are likely, as policymakers remained worried about inflation overshooting the bank's 4 percent target for this year.
The Board of Directors decided to cut the key rate by 25 basis points to 8.25 percent, the Bank of Russia said in a statement on Friday. The reduction was in line with economists' expectations.
In September, the bank had cut the rate by half a percentage point. The latest reduction was the fifth this year.
"Medium-term risks of inflation overshooting the target dominate over the risks of its persistent downward deviation," the bank said.
"In recognition of this, the Bank of Russia's ongoing transition from moderately tight to neutral monetary policy is gradual."
"The Bank of Russia Board of Directors leaves open the option of further rate reduction at its upcoming meetings," the bank added.
The bank noted that inflation holds close to 4 percent and its downward deviation against the forecast is driven mainly by temporary factors.
Inflation expectations remain elevated and their decline has yet to become sustainable and consistent, the central bank added.
The Bank of Russia projected inflation to be close to 3 percent by late 2017 and to reach 4 percent in future driven by temporary factors.
The bank retained its growth projection for this year at 1.7-2.2 percent.
"A closer look at the statement suggests that the Board sees more room for easing than before," Capital Economics economist William Jackson said.
"More importantly, for the first time the statement talked of the move from "moderately tight" monetary policy to "neutral" policy, although it stressed that this will be "gradual"," the economist noted.
This reinforces the point that the current easing cycle, while likely to be gradual, will ultimately bring interest rates down significantly, Jackson said.
by RTT Staff Writer
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