The central bank has promised further interest rate cuts this year. In March, it had reduced the basic interest rate by two points.
The Russian central bank has loosened its monetary policy more than expected, despite sanctions imposed as a result of the war in Ukraine. The central bank announced on Friday that the benchmark interest rate would be reduced by three points to 14%. Economists expected 15%. The central bank has promised further interest rate cuts this year. In March, it had reduced the basic interest rate by two points.
By the end of February, it had sharply raised the interest rate by 10.5 points to 20%. In doing so, she was reacting to sanctions imposed by the West after the start of the war against Ukraine. With the interest rate rising, the central bank wanted to neutralize the ruble’s devaluation and the risk of inflation. The ruble has recently recovered significantly. It is slightly above the level that prevailed before the start of the war.
Central bank wants to support weakened economy
“External conditions for the Russian economy remain difficult and severely constrain economic activity,” the central bank wrote. However, inflation and financial stability risks have not increased more recently. This made it possible to cut the rate. The central bank apparently wants to support the economy, which has been weakened by sanctions, by cutting interest rates.
The central bank acknowledged that inflation is likely to rise further. In April, the inflation rate was 17.6%. A rate of 18 to 23 percent is expected for the year as a whole.
The central bank estimates that gross domestic product will fall by eight to ten percent this year. “The decline will be driven primarily by supply-side factors,” the statement said. This apparently means sanctions. Economic growth of two to three percent had been previously assumed.
(APA)