* Says central bank unlikely to leave rate on hold in June
* Rate cut of one percentage point also unlikely
* C.bank sees U.S. Fed raising rates twice in 2017
* Bearish on oil prices, sees $40/bbl in 2018 or 2019 (Adds quotes and details)
By Elena Fabrichnaya and Alexander Winning
MOSCOW, June 8 (Reuters) - The Russian central bank will stick to 25- or 50-basis point steps when trimming its key interest rate amid a fragile disinflationary trend, the head of the monetary policy department said in an interview with Reuters.
The central bank has recently managed to bring inflation down to its long-term target of 4 percent, a post-Soviet low, and is now trying to find a balanced monetary approach to keep prices under control without creating economic shocks.
Igor Dmitriev said the central bank sees its key rate at 2.5-2.75 percent above inflation, which would be possible “if everything is all right and inflationary expectations decline” in the future.
“We are on our way there. This is a mid- and long-term trajectory. The existing market expectations about the key rate generally match our view,” Dmitriev said.
The latest Reuters poll of analysts showed a consensus for the key rate to be at either 8 percent or 8.25 percent at the end of the year compared with 9.25 percent at present.
The central bank has cut rates twice this year by a cumulative 75 basis points. Dmitriev said he would rule out a rate increase under current conditions and considered it unlikely the central bank’s board would vote to leave rates on hold at the next rate-setting meeting on June 16.
Dmitriev, who spoke ahead of the central bank’s so-called “week of silence” before the rate decision, said the central bank wanted its policy to be predictable, adding that a big rate cut of one percentage point also looked unlikely.
The central bank will continue watching inflation closely, considering risks stemming from uncertainty around this year’s agricultural harvests and the exchange rate of the free-floating rouble.
The bank’s monetary policy, which envisages further rate cuts until the key rate reaches 6.5 to 6.75 percent if inflation stabilises at 4 percent, will encourage saving by households, Dmitriev said.
The Russian central bank also takes into account U.S. Federal Reserve policy, Dmitriev said, adding the Fed was expected to raise rates by 25 basis points next week and then carry out one more rate hike by the end of the year.
Prices of oil, Russia’s key export, are also on the central bank’s radar. While the global OPEC and non-OPEC decisions to extend output cuts are set to prop up crude prices this year, the outlook still looks gloomy.
“Even the extension of the agreement, I think, will not result in a revision of our long-term view on oil prices,” Dmitriev said.
The central bank, which will present a new set of economic forecasts on the day of the rate decision next week, still expects oil prices to slide to $40 per barrel in 2018 or in 2019, the monetary policy chief said.
If oil prices stay steadily above $40 per barrel, Russia’s finance ministry would be able to rebuild the country’s international reserves to the $500 billion target, from the $407 billion seen in early June, with its daily purchases of foreign currency, Dmitriev said. (Writing by Andrey Ostroukh; editing by Andrew Roche)