Russia’s Central Bank Cuts Interest Rates Again as Inflation Stabilizes | Economy

The situation of the Russian economy remains difficult, but the risk to its stability is lower than at the start of the offensive on Ukraine and the imposition of sanctions, according to its central bank. The monetary body has again reduced interest rates, this time from 14% to 11%, observing in recent weeks “a significant slowdown in price growth” and an improvement in the expectations of citizens and companies. In addition, the institution “considers the possibility of further lowering the key rate in its next meetings”, as highlighted in a statement.

The Central Bank of Russia had called an extraordinary meeting of its board of directors for this Thursday. A decision that came after verifying that the official annual inflation was 17.5% on May 20, which represents “a faster fall than that forecast in April.” According to his forecasts, the increase in prices should be in a range of between 5% and 7% next year.

The institution has gradually cut these rates in the last two months. Days after Vladimir Putin ordered the offensive on Ukraine on February 24 and the first rounds of sanctions against Russia were announced, the body raised interest rates from 9.5% to 20% and introduced numerous restrictions on capital movements .

Thanks to this, the national currency, which had sunk from a change of one euro for 90 rubles to more than 160, strengthened to quote around 60, although this does not have to be positive: in its valuation they have also influenced restrictions on capital movements and the collapse of the demand for other currencies due to the collapse of imports.

Although the authorities have eased some regulations, many controls still remain. For example, the Ministry of Economy reduced this week from 80% to 50% the percentage of income in other currencies that exporting companies must exchange for rubles.

In fact, the ruble’s strength has not been matched by a return to previous prices, and its current exchange rate hurts companies that can still export abroad and the government’s budget, tied to the sale of oil and gas, since their income comes in dollars and euros, and the stronger the ruble, the less they earn.

He knows in depth all the sides of the coin.


Difficulty bringing spare parts and supplies

“External conditions for the Russian economy continue to be difficult, which significantly limits activity”, warns in any case the entity directed by Elvira Nabiúllina. In addition, the economist already pointed out during a parliamentary intervention in April that the reserves that the West has not frozen from the fund of 620,000 million dollars (592,000 million euros) that the Government had for emergency situations are running out, and that the Sanctions have reduced the ability of companies to bring spare parts and supplies, so he estimated that the real crisis could break out at the end of the second quarter.

With an economy much more isolated than in January, the Russian central bank has decided to try to encourage domestic consumption. “The flow of funds into ruble time deposits is still continuing, while lending activity remains low. This limits the risks of inflation and requires an easing of monetary conditions, ”he notes in his statement.

According to the investment agency Lokoinvest, “the growth of the ruble has reached the pain threshold of the financial authorities.” The firm also highlights that it is a great risk to invest in the Russian stock market because “most of the index is made up of exporters”, who are harmed by this exchange rate and the sanctions. “Interest rates could fall further in the hope that population deposits due in June will be partially used for consumption of imports and the purchase of other currencies for investment purposes,” he adds.

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