The national flag is flying over the headquarters of the Russian Central Bank in Moscow, Russia, on May 27, 2022.
Maxim Shemetov | Reuters
Russia’s Central Bank on Friday cut its key interest rate by 150 basis points to 9.5%, the level it was at when the Russian invasion of Ukraine began.
While acknowledging that the external environment for the Russian economy remains “difficult and significantly slows economic activity,” the central bank’s board of directors said in a statement that “inflation is slowing further. rapidly and the decline in economic activity is of a smaller magnitude “than expected in April.
“Recent data suggest that price growth rates in May and early June have been low. This is due to movements in the ruble exchange rate and the end of rising consumer demand. in the context of a sharp decline in inflation expectations for households and businesses, “CBR said.
This is the fourth rate cut since an emergency rise of 9.5% to 20% in late February, following Russia’s invasion of Ukraine. It was last reduced from 14% to 11% at an extraordinary meeting in late May.
Russian inflation slowed to 17.1% a year in May from 17.83% in April, which was its highest level since January 2002, indicating that the immediate inflationary shock of the war in Ukraine and the ensuing international sanctions may have reached its peak.
Meanwhile, the ruble has survived a historic low against the dollar after the invasion to become the world’s best-performing fiat currency, although economists are skeptical about the sustainability of the recovery.
The currency rose about 4% against the dollar after Friday’s decision. The ruble was trading at just over $ 57 at noon London time.
The CBR said it will continue to take into account the dynamics of inflation and the “process of economic transformation” implemented in an effort to mitigate the long-term damage of Western sanctions.
Politicians now expect annual inflation in Russia to be between 14.0% and 17.0% in 2022, to fall to 5.0 and 7.0% in 2023 before returning to 4% in 2024.
“Overall, the real decline in economic activity in the second quarter of 2022 is less pronounced than that of the Bank of Russia in its April benchmark scenario. Given the above, the Bank of Russia estimates that the fall in GDP in 2022 could be lower than expected in April. ” said the CBR.
The bank’s next decision-making meeting will take place on July 22.