MOSCOW, Russia: Russia’s central bank cut its key interest rate by 300 basis points for the third time since its extraordinary rise in late February, citing a cooling of inflation and a recovery in the ruble.
KIRIL Kudryavtsev | AFP | Getty Images
Russia’s central bank cut its key interest rate from 14% to 11% on Thursday, citing a slowdown in inflation and a recovery in the ruble.
After an extraordinary meeting, politicians chose another reduction of 300 basis points, the third for the bank after an extraordinary increase in the base rate from 9.5% to 20% immediately after Russia’s invasion of Ukraine and the imposition of criminal sanctions by Western powers. At the time, the CBR also imposed tough capital controls in an effort to mitigate the impact of sanctions and support the ruble.
“Recent weekly data show a significant slowdown in the current rate of price growth. Inflationary pressures are declining amid the dynamics of the ruble exchange rate, as well as a marked decline in inflation expectations of households and businesses,” said a CBR statement. Thursday.
“Annual inflation reached 17.8% in April, but is estimated to have slowed to 17.5% as of May 20, declining faster than the Bank of Russia’s forecast for April.”
After collapsing to a record low of 150 against the US dollar on March 7, weeks after Russian troops launched an unprecedented invasion of Ukraine, the CBR’s capital control measures returned the currency to a two-year high, briefly reaching 53 rubles against the dollar. Tuesday.
The roll weakened against the greenback on Thursday morning to trade at 60.80 per dollar.
The CBR said on Thursday that funds continued to flow into ruble time deposits, while lending activity remained weak, limiting inflation risks.
“External conditions for the Russian economy are still a challenge that significantly limits economic activity. The risks to financial stability have been somewhat reduced, allowing some capital controls to be eased, the CBR added.
The central bank said future interest rate decisions would be in line with actual and expected inflation dynamics, in line with its target and long-term transformation efforts in the Russian economy, earlier warning that the economy must undergo “large-scale structural transformation”. to mitigate the effects. the impact of sanctions.
It is assumed that further interest rate cuts may be foreseen at the upcoming meetings, the next of which will be held on June 10.
“According to the forecast of the Bank of Russia, given the position of monetary policy, annual inflation will fall to 5.0-7.0% in 2023 and return to 4% in 2024,” added the CBR.
William Jackson, chief emerging market economist at Capital Economics, suggested in a note Thursday that given this is the second reduction of 300 basis points in a month, the CBR is unlikely to continue at that pace.
In particular, the language used in Thursday’s statement that the CBR “has an open perspective” to further reduce interest rates differs from a planned meeting in April, at which politicians said the CBB “sees a place” to cut.
“However, the key point is that high oil and gas revenues provide politicians with a lifeline, allowing them to lift emergency economic measures. Against this background, it seems likely to further ease capital controls and further reduce interest rates, “Jackson said.
Add Comment