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UPDATE 2-Russia cenbank says inflation decline on course as holds rates
July 29, 2016 / 10:46 AM / a year ago

UPDATE 2-Russia cenbank says inflation decline on course as holds rates

* Key rate left at 10.5 pct, as expected

* C.bank says economy in line with forecasts

* Says will deliver on inflation target (Writes through with comments, bullets, context)

By Alexander Winning and Lidia Kelly

MOSCOW, July 29 (Reuters) - Russia’s central bank left its main lending rate on hold on Friday, citing the need to maintain moderately tight monetary policy although inflation was falling in line with its forecasts.

The decision comes as the Russian economy is gradually emerging from a deep slump caused by low oil prices and Western sanctions over the Ukraine conflict.

A recent decline in oil prices to their lowest level in several months has led to renewed downward pressure on the rouble, adding to arguments for the central bank to act cautiously.

The bank left its key rate at 10.5 percent, as the majority of economists had predicted in a Reuters poll, after cutting for the first time in almost a year in June.

“Inflation dynamics and the nascent rebound in economic activity are overall aligned to the Bank of Russia’s baseline forecast,” the bank said in a statement, adding however that a decline in inflation expectations had stalled.

It said it would “consider the possibility of a further rate cut based on estimates for inflation risks and the alignment of inflation decline with the forecast trajectory,” repeating guidance it had issued at the time of its last rate decision.

The central bank estimated inflation had fallen to 7.2 percent as of July 25 from 7.5 percent in June.

It still believed it would meet its 4 percent inflation target by the end of next year, predicting inflation would fall below 5 percent in July 2017.

Growth dynamics are patchy across sectors but the trend for recovery is prevailing and annual gross domestic product growth will enter positive territory next year, it said.

Economists said they expected the central bank to resume rate cuts later in the year.

“The general direction hasn’t changed and we still expect the easing cycle to continue,” said Liza Ermolenko at Capital Economics, predicting 50 basis point cuts at each of the bank’s three remaining policy meetings this year.

Vladimir Miklashevsky, a trading desk strategist at Danske Bank, said the central bank would try to meet its 4 percent inflation target “at any price”.

The rouble was little changed after Friday’s rate decision, temporarily paring losses against the dollar before again falling back.

Russian officials have been talking down the rouble in recent weeks, citing budget worries and the competitiveness of Russian industry.

But the Russian currency has lost some 5 percent against the dollar in the past two weeks, easing those concerns. (Editing by Jason Bush and Tom Heneghan)

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