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Russia to Hold Rates in 2021; Economy, RUB to Partly Recover

MOSCOW, Dec 23 (Reuters) - The Russian central bank will not cut interest rates further in 2021 as the economy will return to growth, helping the rouble to regain some ground, a poll of economists and analysts showed on Wednesday.

The COVID-19 pandemic and a drop in oil prices hit Russia’s economy this year, prompting the central bank to slash rates to record lows, but accelerated inflation and the weak rouble have limited the room for further cuts.

The consensus forecast of 19 analysts and economists suggested the central bank would hold its benchmark rate at 4.25% throughout 2021. Forecasts for the year-end ranged from 4% to 5.5%.

A similar poll in late November predicted a 25-basis-point cut in the first half of next year.

The market view has changed after inflation exceeded the central bank’s target of 4% and the bank held rates in December, questioning the need for more monetary easing..

Analysts forecast an uptick in inflation to 4.7% by the year end, up from 4.4% in the previous poll, and see inflation slowing to 3.6% by end-2021.

The oil-dependent economy, which took a hit from lower prices for Russia’s exports and coronavirus-related lockdowns, is expected to shrink 3.7% this year and expand by 2.8% in 2021.

The previous monthly poll predicted a 3.8% contraction this year and 3.3% growth next year.

The rouble outlook improved from a month ago after the currency pared some losses although its recovery was capped by fears of new possible sanctions against Russia.

The rouble could firm past 70 versus the dollar in the first quarter as Russia may increase oil output if OPEC allows it, while the new U.S. administration is likely to focus on internal issues rather than on Russia, said Kirill Sokolov, chief economist at Sovcombank.

The poll showed the rouble was expected to trade at 71.10 to the dollar and 86.68 to the euro 12 months from now. The previous poll foresaw exchange rates of 73.09 and 88.80, respectively.

On Wednesday, the rouble’s official exchange rates, set by the central bank, were 75.35 per dollar and 92.07 per euro.

Most of the forecasts in the Reuters poll were based on at least 10 individual projections.

(Reporting by Andrey Ostroukh; Editing by Bernadette Baum)

Source: Reuters

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