Russia’s central bank cut its key interest rate to 14%, a larger-than-expected drop, and said there was room for further cuts this year as it tries to manage a slowdown in the economy and a spike in inflation.
The central bank was meeting today after the unexpected reduction of the key interest rate to 17% in early April, after raising interest rates to 20%, days after Russia began its invasion of Ukraine.
Today’s decline exceeded expectations, as analysts spoke of a reduction to 15%.
Analysts had predicted that Russia would need lower interest rates due to the impending economic downturn following Western sanctions.
“If the situation develops according to the baseline scenario, the Russian bank sees room for a reduction in the key interest rate in 2022,” it said in a statement.
Estimates point to a reduction in the key interest rate to 10.5% by the end of the year by the central bank, as the stabilization of the ruble helps to tackle inflationary risks.
The central bank also stressed that inflation is expected to reach 18% -23% in 2022, far exceeding the target of 4%, something that could be achieved in 2024. On April 22, it had reached 17.6%.
The central bank now needs to tame inflation, which is close to a 20-year high, with the economy going through its highest recession since the collapse of the Soviet Union in 1991.
The new estimates of the central bank speak of a recession in 2022 between 8% -10%.
Source: Capital
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