Moscow, Russia: The Russian central bank has cut its key interest rate by 300 basis points for the third time since its emergency rise in late February, citing a cooling of inflation and a recovery of the ruble.
KIRILL Kudryavtsev | AFP | Getty Images
Russia’s Central Bank on Thursday cut its key interest rate from 14% to 11%, citing a slowdown in inflation and the recovery of the ruble.
After an extraordinary meeting, policymakers opted for another 300 basis point cut, the Bank’s third since a key emergency rate hike of 9.5% to 20% immediately after the invasion of Ukraine by Russia and the imposition of punitive sanctions by Western powers. . At the time, the CBR also imposed strict capital control measures to try to mitigate the impact of sanctions and shore up the ruble.
“The latest weekly data point to a significant slowdown in current price growth rates. Inflationary pressures are easing due to the dynamics of the ruble exchange rate, as well as the marked decline in inflation expectations. households and businesses, “the CBR said in a statement. Thursday.
“In April, annual inflation reached 17.8%, but, according to the May 20 estimate, it slowed to 17.5%, declining faster than the Bank of April’s forecast. Russia “.
After falling to a record low of 150 against the US dollar on March 7, weeks after Russian troops began their unprecedented invasion of Ukraine, CBR’s capital control measures have led to currency would return to a maximum of two years, briefly touching 53 rubles. to the dollar on Tuesday.
The ruble weakened against the dollar on Thursday morning to trade at $ 60.80.
The CBR said on Thursday that funds had continued to flow towards ruble deposits in the fixed term, while lending activity remained weak, limiting inflationary risks.
“External conditions for the Russian economy remain difficult, severely limiting economic activity. Risks to financial stability have declined somewhat, allowing some capital control measures to be relaxed,” the CBR added. .
The central bank said that future interest rate decisions would be adjusted to the real and expected inflation dynamics, in relation to its goal and efforts to transform the Russian economy in the long run, after having previously warned that the economy must undergo a “large-scale structural transformation” to mitigate it. the impact of sanctions.
He suggested that further rate reductions could be expected at the next meetings, the next of which will be held on June 10.
“According to the Bank of Russia’s forecasts, given the monetary policy stance, annual inflation will decline to 5.0-7.0% in 2023 and return to 4% in 2024,” the CBR added.
William Jackson, chief economist of emerging markets at Capital Economics, suggested in a note on Thursday that, given the second cut of 300 basis points in a month, the CBR is unlikely to continue at this pace.
In particular, the language used in Thursday’s announcement that the CBR “has an open outlook” for further rate cuts differs from the scheduled April meeting at which policymakers said the CBR “sees space.” for cuts.
“However, the key point is that high oil and gas revenues are providing a lifeline for policymakers, allowing them to revoke emergency economic measures. In this context, greater flexibility seems likely. capital controls and additional rate cuts, “Jackson said. .