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. Last Updated: 07/27/2016

Finance Minister Expects Further Interest Rate Cuts

The Central Bank will need to continue easing policy, Finance Minister Alexei Kudrin said Friday, as the ruble surges and loan growth misses Central Bank projections.

The Central Bank is “most likely going to continue cutting rates,” Kudrin said at a banking conference. The strength of the ruble “complicates” recovery prospects for the country’s exporters, he said.

The ruble has gained 9.9 percent against the euro since the end of June as Urals crude rose 12 percent in the same period. The Central Bank is trying to shape policy to prevent currency speculators in search of extra returns from triggering ruble volatility. Deputy Economic Development Minister Andrei Klepach warned this month that the ruble may surge 20 percent in the next three years and has urged the Central Bank to step up efforts to cap the development.

“If toward the end of the year we achieve our target of 6.5 percent to 7.5 percent inflation, then this will be grounds for a further small reduction” in interest rates, Kudrin said.

Kudrin also said Friday that bank lending growth may hit 10 percent this year, compared with annual growth of more than 50 percent before the economic crisis struck.

The Central Bank has eased monetary policy to encourage affordable lending to the real economy and help the country exit its first recession in a decade, although banks remain worried about the creditworthiness of would-be borrowers.

In addition, lackluster domestic demand is hampering companies' investment plans, and high unemployment means that many consumers are reluctant to take on new debts.

"Loans this year may increase by 5 percent, maybe 10 percent … 5 percent to 10 percent is an optimistic forecast," Kudrin told a banking conference.

Banks' loans to nonfinancial organizations were down 6.5 percent in the year to Feb. 1, according to Central Bank data — compared with growth of more than 50 percent in pre-crisis 2007.

Central bank officials have forecast that lending will pick up in the second half of the year.

Sberbank, Russia's largest lender, on Thursday forecast that its loan portfolio may grow at a rate slightly higher than inflation — which the government sees at about 7 percent this year.

The Central Bank said separately that it would reduce the amount banks can borrow without collateral as of May 1. The Central Bank expects that the measure will help banks “reorient” to rely less on its funding and more on the interbank market. The regulator had previously announced it will require lenders to increase reserve requirements this year, targeting a return to pre-crisis levels.

(Reuters, Bloomberg)