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Russia’s VTB Bank head: Time for key rate cuts

May 20, 2016, 14:01 UTC+3 SOCHI

In the banker’s opinion, "as the rate is cut little by little, clients wait for its further reduction and thus borrow less"

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© Maxim Shemetov/ITAR-TASS

SOCHI, May 20. /TASS/. The head of Russia’s second largest bank by assets said on Friday economic conditions in Russia were suitable for the monetary regulator to cut the key rate by as many as two percentage points.

"It is time to cut the rate. This has to be done decisively to give a signal to the market," VTB Bank Group CEO Andrei Kostin said on the sidelines of the Russia-ASEAN summit in the Black Sea resort of Sochi.

"It seems to me that the rate should be cut by 2 percentage points at once and subsequently it should be kept stable instead of constantly reducing it by a half-percentage point. I believe this can be done immediately," he added.

In the banker’s opinion, "as the rate is cut little by little, clients wait for its further reduction and thus borrow less."

IMF: Russia’s Central Bank may continue key rate reduction

According to the International Monetary Fund, the Central Bank of Russia may continue lowering the key rate but the rate increase by the US Federal Reserve will limit relaxation of Russia’s monetary policy.

" Monetary policy has been appropriately on hold since August 2015. However, monetary policy normalization could resume as inflation is on a declining path and inflation expectations continue to fall. In addition, the improvement in the external position is limiting potential depreciation pressures that may fuel inflation," the IMF said.

The pace of monetary policy easing by the Bank of Russia should be gradual given volatile oil prices, uncertainty about future government’s income policies and the behavior of wages, the IMF said. " In addition, policy tightening in the United States or emerging market jitters could limit the central bank’s room to ease its policy stance," experts of the Fund said.

The Russian Central Bank’s key rate has been kept at 11% since August 3, 2015 amid persisting inflationary risks.  The next meeting of its Board of Directors on the key rate will take place on June 10.

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