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Inflation Stays at Lowest Level in 12 Years

The inflation rate remained at the lowest level in 12 years in May, the State Statistics Service said Friday, allowing the Central Bank to keep interest rates at a record low as the economy recovers from its worst contraction since 1991.

Inflation was an annual 6 percent, matching the rate in April, when it fell to the lowest since July 1998, the service said. The median estimate in a Bloomberg survey of 14 economists was for 5.8 percent. Prices advanced 0.5 percent on the month.

Russia posted consecutive declines in the inflation rate every month since August 2009, allowing the Central Bank to cut its main interest rate 14 times in as many months. Risks of a “significant” quickening of inflation in the comings months were low, the Central Bank said last week as it lowered the refinancing rate by a quarter point to 7.75 percent.

“We expect the pickup in inflation in the second half of 2010 to be very gradual, allowing the Central Bank to keep policy rates low well into 2011,” Anna Zadornova, a London-based economist at Goldman Sachs, said by e-mail.

“The Central Bank may still choose to cut its lending rates by another 25 basis points lower in the late summer, before the headline inflation starts to edge up on the base effects,” she said.

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