Russia Sees Better Growth as Inflation Slows

Russia’s economy is seen growing slightly faster this year and inflation is seen slowing, a Reuters monthly poll of economists showed on Thursday.

The median forecast of 20 analysts and economists polled by Reuters in late August was for Russian 2017 gross domestic product growth of 1.7%, above last month’s call of 1.4%. Even though Russia’s economic outlook has improved, the poll’s median forecast is still below the economy ministry’s forecast of 2.1% this year.

Russia’s economic prospects could improve further, however, if the central bank cuts lending rates as analysts expect. Respondents said the conditions were now right for the central bank to trim the key rate, now at 9%, at its next board meeting on Sept. 15.

A resilient ruble and steady oil prices have given the central bank room for a rate cut, analysts at Bank St Petersburg said in comments with their forecasts. The central bank is now widely expected to trim the key rate to 8.75% next month, taking it to 8.25% by the end of the year, the poll showed.

“There are the conditions for a further rate reduction, and a step of 25 basis points is optimal,” said VTB economist Alexander Isakov. “It insures the central bank against overshooting the trajectory which leads to 4% inflation.”

The Reuters poll showed 2017 consumer inflation at 4.1%, compared with last month’s forecast of 4.2%. This marks a slowdown of nearly 17% from early 2015.

Now, when headline inflation has already hit a post-Soviet low of below 4%, the central bank may embark on monetary easing cycle after keeping rates on hold since in July, the economy ministry predicted.

Russian Economy Minister Maxim Oreshkin said earlier on Thursday he expected consumer inflation to reach 3.5-3.7% by the end of the year. “We think this would be among the factors that open the door for monetary policy easing by the central bank,” he said.

The poll also showed that the ruble is seen trading at 61.60 versus the dollar in a year from now, slightly weaker than the 61.00 forecast last month.