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MOSCOW, May 11 (Reuters) - Russia’s central bank governor Elvira Nabiullina says she prefers cutting interest rates in small steps as the bank gradually eases monetary policy, adding that inflation expectations needed to be dampened further.
Nabiullina, in an interview published on Thursday, also told the EM communications agency that neutral nominal interest rates would be at 6.5-6.75 percent given the central bank’s inflation target of 4 percent. Inflation is close to that level now.
The interest rate currently stands at 9.25 percent. It has come down from 10 percent in autumn of last year to 9.75 percent in March and then to 9.25 percent in April.
“The Bank of Russia prefers gradualism in its policy,” she said. “It’s better to move down by small steps than significantly cut down the rate and then due to an unexpected shock raise it back.”
Nabiullina, who became central bank chief in mid-2013, has made bringing inflation down to 4 percent by the end of this year one of her priorities. It dropped to 4.1 percent in April in year-on-year terms after rising 4.3 percent in the previous month.
“Now, when inflation has already fallen significantly, the Bank of Russia still has to make sure that inflation will remain close to the target of 4 percent in the medium-term,” Nabiullina said. “In order to achieve this, we need to further dampen inflation expectations.”
Ksenia Yudayeva, the central bank’s first deputy governor, said last month the bank could reach its inflation target much earlier than expected. Economy Minister Maxim Oreshkin has said the 4 percent goal could be reached as early as this month.
Nabiullina repeated that the central bank considered it possible to restart replenishing the country’s forex reserves once it had met its 4 percent inflation target.
“We will purchase currency for reserves only if the market situation is stable and our operations don’t affect the FX rate,” Nabiullina said.
Since mid-February, the central bank has been conducting forex purchases on behalf of the finance ministry aimed at boosting the country’s fiscal buffers, but the size of the purchases has been small and has done little to weaken the rouble.
Russian authorities say the purchases are aimed at shielding the country from external shocks, but some analysts see them as an attempt to stop the rouble from strengthening too much and spur an economic recovery.
The rouble continued strengthen on Thursday, rising 0.5 percent against the dollar by 1150 GMT, as Brent crude oil prices recovered further and held above $50 a barrel.
Reporting by Andrey Ostroukh and Alexander Winning; Editing by Katya Golubkova and Tom Heneghan