Russia’s central bank decreased its key interest rate to 11 percent on Friday and said it anticipated an opportunity for more cuts this year, as inflation slows from more than 20-year highs and the economy is poised to contract.
It made the decision at an unusual meeting after lowering the key rate to 14 percent in April. This came just a few weeks after the rate was raised to 20 percent because Russia tried to send tens of thousands of troops into Ukraine on February 24.
The central bank, which has now lowered its key rate by a cumulative 900 basis points since February, said it “kept open the option of a key rate reduction at its next meeting.”
“Inflationary pressure eases on the back of the rouble exchange rate dynamics as well as the significant fall in inflation expectations of families and companies,” the bank said in a statement in English.
This year, the rouble has done better than any other currency in the world. This is thanks to capital controls that Russia put in place at the end of February to protect the financial stability of the country and defend itself against wide-ranging western sanctions.
The central bank said external conditions for the Russian economy remain challenging but financial stability risks have somewhat lessened, leaving an opportunity for the relaxation of some capital control measures.
Analysts at Capital Economics wrote in a note that the rouble’s performance has given officials the freedom to undo emergency measures that have been in place since February.
“We anticipate that the CBR won’t continue at this rate of easing.” A further relaxing of capital controls and subsequent rate decreases are imminent, “they warned.”
The move by the central bank had little effect on the rouble, which continued to lose value during the day and fell to 60.90 per dollar, down 2.7% on the day.
The central bank could drop its benchmark rate further by 50–100 basis points at the next rate-setting meeting slated for June 10, said Dmitry Polevoy, head of investing at LockoInvest business.
Governor Elvira Nabiullina is set to speak at a banking conference in Moscow later in the day, where she may shed further light on her bank’s objectives.
The central bank did not mention its previous inflation projection of 18–23 percent for 2022 but said inflation will fall to 5-7 percent in 2023 before reaching its 4 percent target in 2024.
The inflation rate fell to 17.51 percent as of May 20 from 17.69 percent a week earlier with a decline in consumer activity, the economy ministry said, but was maintained at its highest since early 2002.
High inflation makes life harder and has been one of the main things that Russians worry about for years.
On Wednesday, President Vladimir Putin approved 10 percent rise in pensions and the minimum wage to buffer Russians from inflation.
He claimed the country’s economic troubles were all linked to what he called its “special military operation” in Ukraine, which has caused the West to impose unprecedented sanctions against Russian banks, enterprises, business executives, and figures close to the Kremlin.
