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Russian central bank slashes key rate by 50 basis points

The Central Bank of the Russian Federation cut its key rate to 7.75% from 8.25%, its sixth cut this year, and warned of possible further loosening of monetary policy in the first half of 2018 as a production-cuts deal by oil-exporting countries lowered uncertainty over energy-related inflationary risks.

"Medium-term pro-inflationary risks still prevail over the risks of inflation’s sustainable deviation downward from the target," it said in a release. "The Bank of Russia will continue its gradual transition from moderately tight to neutral monetary policy and holds open the prospect of some key rate reduction in the first half of 2018."

The decision followed the statement on Nov. 17 by the bank's Governor Elvira Nabiullina that the bank plans to lower its key interest rate to 6% to 7% in one or two years from now, to prepare for slower and stable inflation.

While the extension of oil production cuts by producing countries lowers uncertainty over a one-year horizon, risks of an upward deviation in prices still dominate, the bank said.

Annual inflation was 2.5% as of Dec. 11, and should gradually near 4% by late 2018, it added.

Economic growth at the end of 2017 will come in close to potential at 1.7-2.2%, the central bank said, adding that it was raising its GDP growth forecast for 2018. Medium-term economic prospects were unchanged, and growth was seen staying below 1.5-2.0%.

The ruble was little changed after the announcement, at 58.82 to the dollar.