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Russia to cut rates in 2018 to prop up economy in election year

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12/27/2017 | 02:07pm CET

The Russian central bank will continue its rate-cutting cycle next year, propping up consumer demand and the broader economy, a Reuters poll showed on Wednesday.

After two years of recession, the economy is forecast to recover further in 2018, a year in which Vladimir Putin is widely expected to win elections to secure another presidential term.

A monthly poll of 16 analysts and economists showed the oil-dependent Russian economy growing by 1.9 percent in 2018 after 1.7 percent this year.

Growth will be aided by lower interest rates, making lending cheaper and spurring buying and investment.

The poll showed the central bank is expected to bring its key rate to 7 percent by the end of next year, from 7.75 percent now.

In the first quarter the central bank is seen trimming its key rate to 7.5 percent, according to the median forecast.

Inflation, close to 17 percent in early 2015, is on track to hit a low of around 2.5 percent this year, the central bank said earlier this month.

The Reuters poll put 2017 inflation a notch higher at 2.6 percent.

"A rate cut is possible in February if inflation expectations decline," said Tatiana Evdokimova, economist at Nordea bank in Moscow.

Next year, annual inflation is likely to accelerate to 3.6 percent, the poll showed, inching towards the central bank's ultimate target of 4.0 percent.

The extension of a global deal to curb oil production until the end of 2018 "creates a rather prolonged period of relatively stable external conditions for the Russian economy and the rouble," Evdokimova said.

Lower rates would help retail sales grow by 2.5 percent in 2018 after rising 1.2 percent this year, the poll suggested.

Higher salaries will support retail sales and the economy. Real wages, adjusted for inflation, are seen rising 3.6 percent in 2018 after a 3.3 percent increase this year.

The poll also showed the rouble is expected to slightly weaken in the course of 2018. A year from now, the currency is seen at 60.81 against the dollar compared with 57.83 on Wednesday <RUB=>.

(Writing by Andrey Ostroukh; editing by Andrew Roche)

By Zlata Garasyuta

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