OREANDA-NEWS. For the second time in a row, the Board of Directors of the Central Bank lowered the key rate by another 0.25 percentage points to 7.25%, the regulator said. This decision is fully in line with economists' expectations: 39 out of 40 analysts surveyed by the American media predicted such a decision, and only one was waiting for the rate cut immediately by 0.5 percentage points.

At the June meeting, the Central Bank also lowered the rate by 0.25 percentage points to 7.5%, and its chairman Elvira Nabiullina made two more drops before the end of the year. In early July, she stated that the next softening is possible already at the next meeting, and both by 25 bp and immediately by 0.5 percentage points. However, Alexey Zabotkin, director of the monetary policy department of the Central Bank, later noted in an interview with the media that to reduce by 0.5 we need very strong arguments.

The fact that the reduction is necessary, none of the analysts had no doubt. Economic activity is weak, wrote Field: according to the Ministry of Economic Development, in the second quarter of 2019, GDP growth accelerated only to 0.8% in annual terms from 0.5% in the first quarter. This year, inflation fell unexpectedly quickly for both the market and the regulator, according to Citi economists: at the end of December, the Central Bank expected prices to rise by 5–5.5% in 2019, but by June it lowered its forecast to 4.2– 4.7%.

In addition, the basic June forecast of the Central Bank assumed that the US Federal Reserve rate would remain unchanged, and the rate of the European Central Bank would rise. Some risks spoke against a more dramatic reduction in rates: gasoline prices and the situation with the coming harvest could affect inflation, analysts of Rosbank pointed out, and Citi economists noted that inflation expectations remain uncrossed (it rose slightly to 9.4% in June from 9, 3% in May).