MOSCOW, April 30 – Russia’s central bank announced yesterday that it is cutting its key interest rate for the second time in a row, as the risks of rising prices and financial instability no longer increase.
The Bank of Russia said it was cutting the rate from 17% to 14% starting next week, a bigger cut than many analysts expected.
He said it was because “the risks to price and financial stability (were) no longer on the upside”, after a period of emergency measures due to Russia’s military action in Ukraine.
The bank raised the rate to 20% in late February, four days after President Vladimir Putin sent troops.
This happened after Western nations imposed sanctions that largely cut off Russia’s financial sector from the global economy.
The central bank, however, cut the interest rate to 17% earlier this month, saying that risks to financial stability had “stopped rising” for the time being.
Analysts polled by Russian media had widely predicted a 15% cut for the latest rate decision.
“It now looks likely that rates will fall towards 10% by the end of the year,” Renaissance Capital analyst Liam Peach said in a note after the decision.
The central bank nonetheless sounded cautious, saying the country’s economy faces a “difficult” situation due to the sanctions and could experience a steeper decline than predicted in its base case scenario.
“A colossal uncertainty”
“We are in a colossal area of uncertainty,” both in terms of supply and demand, bank governor Elvira Nabiullina told reporters after the announcement.
Rating agencies downgraded Russia and warned that paying the dollar-denominated debt in local currency would constitute a sovereign default, the country’s first in decades.
Nabiullina insisted that the Ministry of Finance has the resources to make such payments and “from an economic point of view, one cannot speak of default”, while admitting that there were “payment difficulties that we notice”.
“I hope all of this also passes and ends successfully,” she said.
The central bank said imports to Russia are falling more sharply than exports, due to external trade and financial restrictions.
He released a baseline forecast for this year that imports would fall by up to 36.5% and exports by up to 21%.
He said yesterday that although still elevated, current consumer price growth rates have “declined significantly” from a peak in March, due to a “strengthening ruble and cooling of consumer activity.
The ruble plunged to historic lows against the dollar and the euro in March, from which it has since rebounded.
The central bank has predicted that inflation will peak at 23%, before slowing next year.
The bank has set an inflation target of 4% and promised yesterday that its monetary policy “will ensure inflation returns to target in 2024”.
Although concerned about inflation, the bank said its monetary policy would also focus on the need for a “structural transformation of the economy” given the changing circumstances.
The next meeting to discuss a rate change will be on June 10, as the bank said it sees room for another rate cut this year. —AFP