A Russian national flag over the headquarters of Bank Rossii, the central bank of Russia, in Moscow, Russia, on February 28. (Andrey Rudakov / Bloomberg / Getty Images)
Russia cut interest rates on Thursday as a resurgent ruble, driven by robust oil and gas revenues, draws some of the heat from inflation.
Russia’s central bank cut interest rates from 14% to 11% after inflation slowed to 17.5% in May from 17.8% in April , said the bank, which now predicts that annual inflation will fall to 5-7% in 2023 and return to 4% in 2024.
The bank raised interest rates by up to 20% when the Russian economy was hit by Western sanctions, but the latest measure means that they are now almost the same as before the invasion of Ukraine, when they were at 9.5%.
“External conditions for the Russian economy remain difficult, severely limiting economic activity,” the bank said. “The risks of financial stability decreased slightly, which allowed some relaxation of some capital control measures.”
In response to the decision, William Jackson, chief economist of emerging markets at Capital Economics, said it seems likely that additional rates will be reduced and capital controls will be relaxed.
“The key point is that high oil and gas revenues provide policymakers with a lifeline, which allows them to repeal emergency economic measures,” Jackson said.
On Monday, Russian President Vladimir Putin said the economy “is bearing the brunt of the sanctions” despite the bleak outlook.
“Despite all the difficulties, the Russian economy is enduring the impact of the sanctions and is doing quite well,” Putin said at a meeting with Belarusian President Alexander Lukashenko in the tourist town of Sochi on the Black Sea.
“Yes, it’s not easy. Everything that happens requires special attention from the government’s economic bloc. Taken together, these efforts are having a positive effect,” Putin said.
Background: At the end of April, the Central Bank of Russia said that the Russian economy was expected to shrink by 8% to 10% in 2022, and observed a decline in economic activity in March. of the imposition of international sanctions on Russia.
Earlier this month, the World Bank predicted that Russia’s GDP would fall by 11.2% in 2022.
Western sanctions imposed after Russia’s invasion of Ukraine are hampering the life of the Kremlin, but are also affecting the global economy.
“Russia’s invasion of Ukraine has exacerbated the Covid-19 pandemic, a crisis after crisis, devastating lives, dragging growth and raising inflation,” according to an International Monetary Fund statement released on Monday.