Russia keeps key rate at 4.25%, leaves door open for cuts

Credit: REUTERS/MAXIM SHEMETOV

Russia's central bank kept its key interest rate at 4.25% on Friday following a weakening in the rouble ahead of the U.S. presidential election, but said a rate cut was still possible in the coming months.

Adds detail

Bank of Russia keeps key rate at 4.25%

Decision in line with expectations

Central bank says will study need for lower rates

MOSCOW, Oct 23 (Reuters) - Russia's central bank kept its key interest rate at 4.25% on Friday following a weakening in the rouble ahead of the U.S. presidential election, but said a rate cut was still possible in the coming months.

The decision to keep the rate at a record low RUCBIR=ECI was in line with a Reuters poll that forecast Russia would keep the cost of lending unchanged amid increased global market volatility.

"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, repeating what it said after a previous rate meeting in September.

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, and from the coronavirus pandemic and subsequent lockdowns that hit business activity.

The central bank said it had revised its 2020 economic contraction forecast to 4-5% from 4.5-5.5%, and said it now expected the economy to grow by 3-4% in 2021.

Inflation expectations of households and businesses remain elevated, the central bank said, even though annual inflation remains below the central bank's 4% target.

The rouble showed limited reaction and traded at 76.36 against the U.S. dollar after the rate decision RUBUSTN=MCX.

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 Dec. 18.

(Reporting by Andrey Ostroukh, Gabrielle Tétrault-Farber, Elena Fabrichnaya, Polina Devitt; Editing by Andrew Osborn)

((andrey.ostroukh@thomsonreuters.com; +7 495 775 1242;))

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