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UPDATE 2-Russian central bank puts rate-cutting cycle on hold

* Bank of Russia keeps key rate at 4.25%

* Decision in line with expectations

* Central bank says will study need for lower rates

* Analysts expect bank to cut rates further

* Next rate meetings due on Oct. 23, Dec. 18 (Adds detail, quotes)

By Andrey Ostroukh, Elena Fabrichnaya and Gabrielle Tétrault-Farber

MOSCOW, Sept 18 (Reuters) - Russia’s central bank kept rates unchanged at a record low on Friday, deciding against further rate cuts as inflation accelerates and risks rise of fresh sanctions against Moscow, but said a rate cut was still possible later this year.

The key rate remains at 4.25%, in line with a Reuters poll that forecast Russia would keep the cost of lending unchanged following a slide in the rouble.

“Firstly, in recent months inflation has been slightly higher than expected ... Secondly, the external environment has become more volatile,” Governor Elvira Nabiullina said, presenting the rate decision.

“Geopolitical risks have intensified.”

Expectations for the bank to hold the key this month were cemented by the rouble’s drop to a six-month low against the dollar, and its weakest levels since 2016 versus the euro, earlier in September.

Nabiullina played down the importance of the rouble decline, sparked by fears that the poisoning of Kremlin critic Alexei Navalny and the political crisis in neighbouring Belarus could lead to more pressure from the West on Moscow.

“I think the population and companies are already used to the floating exchange rate, that there are periods when it weakens and periods when it strengthens,” she said.

NEXT MOVE?

Recent reductions in the key rate will continue to support the Russian economy this year and next, the central bank said, repeating its message from July’s rate-setting meeting.

“If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction at its upcoming meetings,” it said.

Lower rates support the economy through cheaper lending but can also increase inflation, the central bank’s main remit, and make the rouble more vulnerable to external shocks.

“It seems that the central bank wants to be cautiously conservative and at the same time don’t forget about a possibility to lower rates,” said Stanislav Murashov, an economist at Raiffeisenbank.

The central bank’s comment that disinflationary risks prevail opens the door for a rate cut to 4% at meetings in October or December, said Dmitry Polevoy, head of investment at Locko Invest.

Analysts at Capital Economics, who had expected the central bank to cut the rate in September, now expect it to finish this year unchanged at 4.25% before falling to 3.50% by the end of next year.

Reporting by Andrey Ostroukh, Gabrielle Tétrault-Farber, Elena Fabrichnaya, Katya Golubkova, Alexander Marrow, Darya Korsunskaya, Anastasia Lyrchikova; Writing by Andrey Ostroukh; Editing by Mark Trevelyan and Catherine Evans

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