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No grounds for Russia’s further key rate cut — ex-finance minister

March 31, 2015, 18:15 UTC+3 MOSCOW
The regulator cut the rate somewhat ahead of time to demonstrate its confidence that inflation would start to slow down, Alexey Kudrin says
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Russian Central Bank

Russian Central Bank

© Vyacheslav Prokofyev/TASS

MOSCOW, March 31. /TASS/. There are no grounds for Russia’s Central Bank to cut its key rate further below 14% in the current environment, former Finance Minister Alexey Kudrin said in an interview with TASS on Tuesday.

"I believe the rate is currently normal. It is high for banks but it can’t be lower for the stability of the macro-economy so far," Kudrin said.

The regulator can cut its key rate further when inflation begins to slow down, he added.

The ex-finance minister said it was difficult to predict whether grounds would emerge for the rate cut by late April, when the Central Bank would hold its next interest rate policy meeting.

The regulator cut the rate somewhat ahead of time to demonstrate its confidence that inflation would start to slow down, Kudrin said. "But it is not slowing down so far, although it has already stopped [rising]," he added.

If the key rate is cut in the current environment, banks will start taking out more loans from the Central Bank and risks will emerge for the exchange rate, Kudrin said.

"They [risks] are undoubtedly lower than before but it is necessary to be cautious so far. If the exchange rate turns volatile again, this will be worse for the market than just a key rate of 14% It is better to keep the rate and prevent the ruble’s swings," the ex-finance minister said.

Russia's key rate hike

Russia’s Central Bank hiked the main lending rate to 17% from 10.5% on December 16 in a bid to stem the ruble’s slump amid falling world oil prices, western sanctions, a faltering economy and large capital flight.

The regulator’s move prompted interest rate increases in the Russian banking sector and actually made lending unaffordable both to businesses and households.

Central Bank Governor Elvira Nabiullina said the regulator would be ready to lower the key rate if a steady trend emerged for lower inflationary and devaluation expectations.

The Russian regulator made a decision on January 30 to cut the key rate by 2 percentage points.

"The rate cut by 2 percentage points gives a possibility to launch crediting for the real sector, which is one of the tasks of the [government’s] anti-crisis plan," Nabiullina said.

At its policy meeting on March 13, the regulator cut the key rate by another percentage point to 14%.

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