MOSCOW, Russia: Russia’s central bank cut interest rates by 300 basis points for the third time since an emergency hike in late February, citing cooling inflation and a recovery in the ruble.
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The Central Bank of Russia cut interest rates to 11% from 14% on Thursday, citing a slowdown in inflation and a recovery in the ruble.
After an extraordinary meeting, policymakers decided to cut another 300 basis points, the bank’s third since an emergency hike in interest rates from 9.5% to 20% in the wake of Russia’s invasion of Ukraine and the imposition of punitive sanctions by the West powers . At the time, the CBR also imposed strict capital control measures to mitigate the impact of sanctions and support the ruble.
“The latest weekly data points to a significant slowdown in current price growth rates. Inflationary pressures are easing on the back of ruble exchange rate dynamics as well as the notable decline in household and corporate inflation expectations,” the CBR said in a statement Thursday.
“In April, annual inflation hit 17.8%, but based on the May 20 estimate, it slowed to 17.5%, declining faster than the Bank of Russia’s April forecast.”
After the currency fell to a record low of 150 against the US dollar on March 7, weeks after Russian forces began their unprecedented invasion of Ukraine, the CBR’s capital control measures have pushed the currency back to a two-year high and briefly 53 rubles to the dollar reached on Tuesday.
The ruble weakened against the greenback on Thursday morning, trading at 60.80 to the dollar.
The CBR said on Thursday that funds continued to flow into ruble-denominated time deposits while lending remained weak, limiting inflation risks.
“External conditions for the Russian economy remain challenging and severely limit economic activity. Financial stability risks eased somewhat, allowing some capital control measures to be relaxed,” the CBR added.
The central bank said future rate decisions would take into account actual and expected inflation dynamics relative to its goal and efforts to transform Russia’s economy over the long term, after earlier warning that the economy would need to undergo “large-scale structural change” to do so mitigate the effect of sanctions.
It suggested that further rate cuts could be on the horizon at forthcoming meetings, the next of which will be on June 10.
“According to the Bank of Russia forecast, given the monetary policy stance, annual inflation will fall to 5.0-7.0% in 2023 and return to 4% in 2024,” the CBR added.
William Jackson, chief emerging markets economist at Capital Economics, indicated in a note on Thursday that the CBR is unlikely to continue at this pace given that this was the second 300 basis point cut in a month.
Notably, the language used in Thursday’s announcement that the CBR was “keeping the prospect of further rate cuts open” differed from the scheduled meeting in April, at which policymakers said the CBR “sees room” for cuts.
“Nevertheless, the key point is that high oil and gas revenues provide policymakers with a lifeline, enabling them to roll back emergency economic measures. Against this backdrop, further easing of capital controls and additional rate cuts seem likely,” Jackson said.