Russia seen cutting interest rates in first-quarter, holding for now

By Elena Fabrichnaya and Andrey Ostroukh

MOSCOW (Reuters) - Russia's central bank will cut its main lending rate in the first quarter of 2017, but keep it unchanged at 10 percent on Friday, a Reuters poll of analysts predicted.

Struggling to tame inflation, the central bank has cut the key rate only twice this year despite a need for cheaper lending to kick start a sluggish economy. The central bank said last month it would only consider a rate cut in 2017.

Seventeen of 25 economists polled by Reuters said on Monday they expected the central bank to cut its key rate in the first quarter of next year from its current level of 10 percent.

Analysts at Credit Suisse said the central bank would need to strike the right balance between the impact of higher oil prices, a recent recovery in consumer demand indicators, and recent fiscal policy.

"We believe the central bank is going to play down the sustainability of the recent recovery in oil prices while focusing more on the latter two factors as a significant risk to its 4 percent inflation target in 2017," said Alexey Pogorelov, an economist at Credit Suisse.

Fiscal planning has been in focus at a time when the country is trying to curb the budget deficit amid low oil prices. Russia is trying to avoid having to spend 1 trillion rubles ($16.06 billion) from its Reserve Fund to plug holes in the budget.

Greater budget spending could spur inflation, which the central bank has been trying to rein in for years. The central bank warned last week that there was still a risk that inflation might not fall to its 4 percent target by the end of next year.

"The press release is likely to retain a hawkish tone," said Vladimir Tsibanov, a strategist at Sberbank CIB.

Inflation is on track to hit a post-Soviet low of less than 6 percent this year. If and when inflation hits the 4 percent target, the central bank will cut its key rate to 6-7 percent, Elvira Nabiullina, the bank's governor, said earlier this month.

($1 = 62.2562 rubles)

(Editing by Andrew Osborn)

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