The Central Bank of Russia lowered its key interest rate by 1.5% – this is a rate higher than the expectations of analysts who estimated that it would decrease by only 0.5%. Russia’s progressive step comes against the background of the strengthening of the currency and the cooling of the fear of increasing inflation and a possible recession.
“The external environment of the Russian economy remains challenging and continues to significantly limit the country’s economic activity,” the bank said in a statement, noting that the decline in business activity in June was slower than expected. The bank added that a further slowdown in inflation stems both from “the effect of a group of specific factors and from subdued consumer demand.”
Annual inflation in Russia dropped to 15.9% in June compared to 17.1% in May, and it was last estimated at 15.5% as of July 15. The Russian central bank said it will consider the need for another key interest rate cut in the second half of 2022, and that it sees inflation falling to 12%-15% later this year, before falling to 5%-7% in 2023. The bank’s interest rate target is 4% in 2024.
The value of the currency has strengthened to such an extent that Russia’s central bank has begun taking active steps to try to weaken it, fearing that this will make the country’s exports less competitive. The main engine behind the increase in the value of the currency is, first and foremost, the record revenues that the country records from oil and gas, somewhat paradoxically, due to the increase in energy prices, among other things, due to the sanctions imposed on it.
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