Central bank cuts key rate by 1.5 pp to pre-sanction level of 9.5%

MOSCOW, Jun 10 (PRIME) -- Russia’s central bank reduced its key rate by 1.5 percentage points to the pre-sanction level of 9.5% annually, the regulator said in a statement on Friday.

The external conditions remain tough for the Russian economy, but inflation is slowing down faster than the central bank expected, while economic activity is contracting slower than expected. The higher ruble rate and lower demand coupled with contraction of inflationary expectations, resulted in shrinking inflation, the central bank said.

The regulator expects inflation at 14–17% in 2022, 5–7% in 2023, and 4% in 2024, while the average annual key rate should range between 10.8 and 11.4% in 2022, 7–9% in 2023, and 6–7% in 2024. At its upcoming meetings, the central bank plans to evaluate reasonability of further reductions of the key rate, the regulator said.

The monetary conditions remain difficult as the OFZ federal bonds’ yield and the interest on the loans and deposits shrank, causing a fall of the ruble deposits. At the same time, high risk premiums and high requirements for the borrowers maintain tough pricing and non-pricing conditions of lending, thus reducing activity on the retail and corporate lending markets.

A fall in business activity is not as deep in May as in April. But companies are still suffering from problems in production and logistics, and the consumer activity is shrinking in real terms as incomes are falling while the propensity to save is rising. The actual economic contraction in April–June is not as bad as the central bank expected, and the gross domestic product (GDP) may shrink less in 2022 than the expected 8–10%, the authority said.

A further worsening of the external trade and financial restrictions may reduce the Russian economy’s potential, and the growing risks of a global recession may weaken external demand for Russian exports. At the same time, a significant foreign trade surplus may provide dis-inflationary impact at a time when exports outpace imports, the central bank said.

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