Russia is cutting interest rates again in an attempt to save the economy

The Russian central bank signaled on Friday that it is close to postponing further interest rate cuts. Friday’s decision to cut by 50 bp was the smallest move in this cycle of cuts.

Elvira Nabiullina, head of the central bank, said the current monetary condition was “generally neutral”. – The next step, apart from keeping rates at the current level, may be a rate hike, but we also do not rule out a further cut – said Nabiullina. Although inflation rates have decreased recently, the head of the central bank expressed concern about the recent rise in inflation expectations.

The current interest rate is 7.5 percent. is at the same level as just before the invasion of Ukraine (February 24, 2022). At the end of February, the rates went up to 20%. to defend the ruble’s value against foreign currencies. Rate cuts started in early April.

The Russians had to raise interest rates at the beginning of the year to defend the value of the ruble.

Further interest rate cuts – intended to stimulate the Russian economy ravaged by the imposition of sanctions by Western countries – would have been possible had it not been for the growing concerns about rising household costs and accelerating inflation.

However, official statistics show that inflation in Russia in August slowed to 14.3%. with 15.1 percent in July and 15.9 percent. in June and 17.1 percent. in May and 18 percent. in April. However, economists of the Russian central bank are concerned about rising inflation expectations, loose fiscal policy of the government and a hot labor market. Concerns about inflationary risks outweighed previous concerns about a deep recession (which led to a sharp cut in recent months). In its last assessment, the central bank is quite optimistic about Russia’s economic prospects. It was assumed that this year GDP will fall in the upper range of 4-6%, which is less than previously expected. It added that Russian companies are increasingly adapting to operating under sanctions.

According to official Russian data, the consumer inflation index dropped to 14.3 percent in August.  Every year.

According to official Russian data, the consumer inflation index dropped to 14.3 percent in August. Every year.

Earlier, Nabiullina said she was prepared to tolerate inflation “slightly above” the central bank’s 4% target. Now the central bank has lowered its inflation forecast and assumes that it may amount to 11-13%. at the end of this year. Market economists expect the main interest rate will not fall below the current 7.5%. at least until the first quarter of next year.

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