Russia: Central Bank cuts the reference interest rate by 150 bp to 9.5%

The Central Bank of Russia announced on Friday that it cut its monetary policy rate by 150 basis points from 11% to 9.5%. In its statement, the central bank said it will consider the need for further rate cuts at its upcoming meetings.

According to the Bank of Russia forecast, given the current monetary policy stance, annual inflation is estimated to be 14.0/17.0% in 2022, decreasing to 5.0/7.0% in 2023 and returning to 4% in 2024.

According to the Bank of Russia the drop in inflation it will be the product of movements in the exchange rate (appreciation of the ruble) and the decrease in the increase in consumer demand “in the context of a marked decrease in the inflation expectations of households and companies.

“In the future, in its decision-making on key rates, the Bank of Russia will take into account the dynamics of actual and expected inflation relative to the target and the processes of economic transformation, as well as the risks posed by internal conditions. and external and the reaction of the financial markets,” said the monetary authority in the statement. The bank still sees generally tight monetary conditions

He said high-frequency indicators point to a halt in the decline in business activity in May, after it fell sharply in April. “Consumer activity in real terms is on the decline as households show a high propensity to save and real incomes decline,” the statement read. They describe that the external environment of the Russian economy “remains challenging and significantly limits economic activity”.

The ruble was not affected by the decision. USD/RUB is trading around 57.00, very close to the May low, which itself was the lowest exchange rate since 2018.