Central Bank of Russia opens door to rate cut as soon as 2019

At their meeting on Friday, policy-makers at the Central Bank of Russia kept their key policy rate at 7.75%, as had been widely anticipated by analysts.

But they also lowered their forecast range for the annual rate of gain in CPI from 5.0-5.5% to 4.7-5.2% and said inflation was expected to end the year at the bottom end of the latter.

In its policy statement, CBR said it had "every reason to believe" that the prior year's hikes would suffice to bring prices back to its target level of 4.0% in the first half of 2020.

As recently as December, policymakers had not ruled out that prices might exceed that pace "considerably".

Since then however, economic data had been more positive than expected, financial and commodity markets overseas had stabilised, the pass-through from last year's hike in value-added taxes had been "quite moderate" and inflation expectations had begun to decline.

Declines in petrol and diesel prices and strength in the currency, the rouble, also dampened price gains and inflation expectations, the central bank said.

The monetary authority also noted the more 'dovish' tone adopted by the Federal Reserve and the European Central Bank of late.

Nonetheless, geopolitical risks remained.

"Should the situation unfold according to our baseline forecast, we hold open the prospect of a key rate reduction somewhat sooner than we assumed back in December last year," CBR said.

"We do not rule out that this may occur in 2019. The Bank of Russia will make its key rate decisions, as it always does, taking into account inflation and economic dynamics against the forecast as well as risks posed by external conditions and the reaction of financial markets."

The central bank's shift in its assessment of risks saw the US dollar jump 1.17% to 64.6485 against the rouble.