Russia to Follow Brazil in Cutting Rates This Year, BofA Says

Russia’s central bank will cut its main policy rate twice this year, reversing increases of borrowing costs in 2011, Bank of America Corp. said.

Policy makers around the world are growing increasingly concerned about a global slowdown as the U.S. is struggling to stave off a recession. Brazil’s central bank unexpectedly cut rates on Aug. 31, citing a “substantial deterioration” in the global economy even as inflation accelerated every month this year.

“Brazil’s surprise move intensified investors’ search for rate-cut candidates in emerging Europe, Middle East and Africa,” David Hauner, head of emerging-Europe strategy at Bank of America Merrill Lynch in London, said in an e-mailed note.

The two cuts in Russia, the first of which Bank of America forecasts for the end of this month, will bring the main refinancing rate to 7.75 percent by year-end, Hauner wrote. Bank Rossii then will reduce the rate by another 75 basis points, to 7 percent next year, Hauner said. At next week’s policy meeting, rates will remain on hold, according to Hauner.

Brazil became the second emerging market to lower rates to support growth after Turkey’s central bank cut its benchmark interest rate to a record low 5.75 percent after an unscheduled meeting Aug. 4. Turkey will reduce rates another 75 basis points this year as policy makers are “scrambling to stem a decline in growth below potential,” Hauner wrote.

While Hungary also has room to cut rates, the central bank will refrain from reductions until the second half of 2012 to wait for a resolution of the euro-region debt crisis. Polish policy makers will put off rate reductions until inflation slows toward its target, according to Bank of America.