Moscow has cut interest rates to pre-invasion levels as officials try to weaken the ruble.
The Central Bank of Russia (CBR) reduced its benchmark debt rate by 1.5 percentage points to 9.5% and indicated that further reductions could occur.
Officials have now completely reversed a 20% emergency increase aimed at controlling inflation in the first weeks of the Ukrainian conflict.
The CBR said: “Inflation is slowing faster and the decline in economic activity is smaller than the Bank of Russia expected in April.”
He said policymakers “would take into account the need to cut the key rate at their next meetings.”
Inflation in Russia slowed in May to 17.1%, from a two-decade high of 17.8% in April. The CBR predicted that inflation by 2022 as a whole would be between 14% and 17% on average.
Softening the ruble and stimulating the sanctioned economy in Russia have become higher priorities for the Kremlin, which is facing the biggest GDP slowdown in any developed country this year.
The ruble is currently trading near a four-year high at $ 58, after recovering rapidly due to Moscow’s introduction of capital controls and higher rates, as well as an extraordinary trade surplus stimulated by falling exports and high oil prices.
A strong currency runs the risk of making imports from Russia less lucrative and also increases costs.
Liam Peach of Capital Economics said: “Strict capital controls and the adjustment of the ruble have been key to Russia’s stabilization since March.
“But with the inflation risks now contained, policymakers no longer seem to want such a strong currency and a weaker ruble may give more support to the economy.”
He added that “we believe that today’s cut will be followed by less aggressive easing later this year,” he predicted that the CBR would reduce rates to 8% by 2023.
Tatiana Orlova of Oxford Economics said the statement was “less bad” than other recent ones.
ING analysts said they would not expect the ruble’s recovery to cool significantly until the end of the year, when Western countries begin to significantly curb energy purchases.