* Governor Nabiullina says rate cut possible in 2020
* Says lockdown to hit economy mostly in Q2
* Says unemployment rate seen rising
* Economists warn of deeper economic contraction
* Finance ministry mulls more borrowing – source (Adds details, quotes, background)
By Andrey Ostroukh, Elena Fabrichnaya and Darya Korsunskaya
MOSCOW, April 3 (Reuters) – Russia’s central bank sees scope for an interest rate cut in 2020 as it expects inflation to be subdued by the effects of the coronavirus pandemic, its Governor Elvira Nabiullina said on Friday.
The central bank’s actions are in sharp focus as Russia’s economy slides into recession, the rouble trades near four-year lows and social discontent mounts.
President Vladimir Putin heightened concerns on Thursday by prolonging a paid non-working period across Russia, which is expected to hammer small and medium businesses.
This means the economy and individual sectors will operate at about 55% of capacity in April, which may translate into a 4.2% annual contraction of growth in 2020, Citibank said.
Nabiullina said at the first weekly briefing about the measures to protect financial markets from the coronavirus crisis that the experience of other countries showed that a month of quarantine may cost up to 2% of gross domestic product.
Analysts polled by Reuters in late March predicted that recession will start in the second quarter.
Nabiullina declined to give specific economic forecasts but said unemployment will rise, while inflation is still below the 4% target and could be limited by weaker demand.
“If the situation develops in line with this scenario and financial markets are stable, we see some potential for lowering the key rate during 2020,” Nabiullina said.
The central bank’s next rate-setting meeting is due on April 24 and Sergey Konygin, chief economist at Gazprombank, said the first cut to the key rate, which is now 6%, is possible in June after the impact of the weak rouble filters into inflation.
Nabiullina said the central bank will ease regulatory requirements for Russian banks, which will see their profit shrink in 2020, and is also ready to provide liquidity.
Even though it has more than $550 billion in gold and forex reserves, Russia is looking for new funds as the country scales up its crisis response to the coronavirus pandemic. The finance ministry has reserved 1.4 trillion roubles to fight coronavirus.
The budget revenue shortfall may reach 4 trillion roubles this year if the average oil price is at $20 per barrel, and a half of the gap could be covered by the National Wealth Fund, a source familiar with the finance ministry plans told Reuters.
The rest, or between 1-2 trillion roubles, could be raised in the domestic market, the source said. The finance ministry did not reply to a request for comment.
Russian lawmakers this week approved the raising of state borrowing beyond budgeted limits. The finance ministry had planned to borrow 2.3 trillion roubles in OFZ rouble-denominated bonds. ($1 = 76.8435 roubles) (Additional reporting by Darya Korsunskaya, Gabrielle Tétrault-Farber, Maria Kiselyova, Elena Fabrichnya and Katya Golubkova; Writing by Andrey Ostroukh; Editing by Alexander Smith and Hugh Lawson)
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