Central bank says cuts key rate by 1.5 pp to 8% annually

MOSCOW, Jul 22 (PRIME) -- The Russian central bank has reduced the key rate by 1.5 percentage points to 8% annually, it said in a statement on Friday.

"The current consumer price growth remain low favoring further deceleration of annual inflation. This is connected both with the influence of a series of one-time factors, and subdued consumer demand," the central bank said.

"Inflation expectations of the population and the business decreased significantly, reaching the levels of spring 2021. Business activity declines slower than the Central Bank of Russia expected in June. Nevertheless, the external conditions for the Russian economy remain difficult and still significantly limit economic activity," the authority said. 

Annual inflation slowed down to 15.9% in June from 17.1% in May and reached 15.5% on July 15 thanks to price correction after a sharp increase in March. At the same time, the most fundamental price processes still indicate a higher than 4% annual inflation.

Inflation expectations of professional analysts for the medium term amount to about 4%. The central bank’s basic scenario says that annual inflation will fall to 12–15% as of the end of 2022. The ruble dynamics, the efficiency of imports replacement and the recovery of imports will contribute to future inflation. The authority expects that annual inflation will return to 5–7% in 2023 and to 4% in 2024.

The short-term disinflation risks grew, while pro-inflation risks prevail in the medium term.

The monetary and credit conditions continued to ease but remained tough, including due to lower inflation expectations. The yield on short-term and medium-term OFZ state bonds fell and on the long-term  remained unchanged. An inflow of deposits continued, but mainly to the current accounts. 

Both supply and demand contribute to declining economic activities. However, both the business mood and consumer demand have started to improve. Imports’ fall due to sanctions exceeds the fall of exports.

The central bank forecasts a 4–6% decline of the gross domestic product in 2022, 1–4% in 2023 and an increase of 1.5–2.5% in 2024.

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