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Russia's central bank slashes key rate to 7.25%, hints at more cuts

The Central Bank of the Russian Federation lowered its key interest rate by 25 basis points to 7.25% per annum and signaled more rate cuts ahead as inflation remains low.

In announcing the rate cut, the central bank noted that annual inflation stood at 2.2% in February, staying below its 4% target longer than expected.

The bank expects annual inflation to continue its slowdown in the first half of 2018 before picking up in the second half and gradually moving closer to its target.

"In this environment the Bank of Russia will continue to reduce the key rate and will complete the transition to neutral monetary policy in 2018," the central bank said in a statement, projecting annual inflation to be 3% to 4% this year and remain close to 4% in 2019.

ING Research said in a note that the central bank may slash its key rate by 25 basis points in its next meeting in April and again in June before some possible pauses in the second half of the year. It expects the key rate to be at 6.50% by the end of 2018 and 5.75% in 2019.

The central bank said its general views on Russia's economic expansion have remained unchanged. It predicted the country's GDP to grow between 1.5% and 2% through 2020.

"January's and February's economic development data confirmed our estimate that the slowdown in GDP growth at the end of last year was of a temporary nature. The economy continued to expand at the beginning of the year," central bank governor Elvira Nabiullina said.