The Russian central bank decides to cut interest rates for the fifth time in a row. At the beginning of the war, the central bank drastically increased its key interest rate to 20 percent in order to stop the devaluation of the ruble.
(Photo: Reuters)
Riga The Russian central bank has eased its monetary policy again despite the ongoing sanctions against Russia. The Governing Board lowered the key interest rate by 1.5 percentage points to 8.0 percent, as the central bank announced in Moscow on Friday. It is the fifth rate cut in a row. Analysts had expected a reduction to 9.0 or 8.5 percent.
This is below the level before Russia’s war of aggression against Ukraine began on February 24. Shortly after the start of the invasion, the central bank drastically raised its key interest rate from 9.5 to 20 percent on February 28.
The central bank was reacting to the sanctions imposed by Western countries and was trying to stop the depreciation of the Russian currency, the rouble. The bank later lowered the key interest rate to 17 percent.
Central bank chief Elwira Nabiullina signaled her readiness for further redemptions as early as April. This made credit cheaper again for companies and consumers. At that time, Nabiullina declared that one had to “create conditions to increase the availability of credit for the economy”.
Top jobs of the day
Find the best jobs now and
be notified by email.
The third interest rate cut followed at the end of May, during which the base rate was reduced by 3.0 percentage points to 11.0 percent.
Ruble is stronger than before the invasion
In the meantime, however, the ruble is even more valuable than before the attack on Ukraine, also due to significant capital restrictions imposed by Moscow. In response to the sanctions, Russia’s central bank introduced capital controls early on to prevent large-scale foreign exchange flows.
The head of Russian Central Bank Elvira Nabiulina gestures while speaking at the St. Petersburg International Economic Forum in St.Petersburg, Russia, Thursday, June 16, 2022. (AP Photo/Dmitri Lovetsky)
(Photo: AP)
Measures imposed at the time included a ban on the export of cash in excess of $10,000. Last week, however, central bank governor Nabiullina spoke out in favor of lifting most foreign exchange restrictions.
Although the inflation rate is high at 15 percent, it is tending to decline. The central bank therefore has leeway to lower its key interest rate and relieve the economy. This is confirmed by Janis Kluge, Russia expert and economist at the Berlin Science and Politics Foundation (SWP): “The fact that inflation has already been declining in recent weeks gives the central bank some leeway.”
Consumer prices in Russia fell 0.17 percent in the week ended July 15 after falling 0.03 percent a week earlier, data showed on Wednesday. This development allows the central bank to consider another rate cut.
1.5 percentage points: Large rate hike is a surprise
Moritz Kraemer, chief economist at LBBW, would not have expected such a big step: “The interest rate reduction path had been quite aggressive for months. However, it is still a surprise that the step down is now so large.” According to him, the decision above all “has strong symbolic power, especially since Russia’s key interest rate is now back below the pre-war level.”
>> Read here: Central Bank Governor Nabiullina – The woman who saved Russia from collapse
However, this in no way points to a recovery of the Russian economy. “The central bank’s decision shows that the decline is slower than feared,” Kraemer told the Handelsblatt.
In his eyes, the development also shows the “good management” of the Russian central bank under the leadership of Nabiullina. SWP expert Kluge also sees it this way: “The central bank has very competent people who made quick decisions, especially at the beginning of the sanctions.”
LBBW chief economist Kraemer says: “Nevertheless, there is no avoiding a recession, there can be no talk of an upswing. Because Russia is simply too dependent on imported goods.”
Prospects for Russian economy still bleak
The British economist Timothy Ash also confirms this. He calls the prospects for the Russian economy “really gloomy” despite falling key interest rates. The next rate review meeting in Moscow is scheduled for September 16th.
More: ECB raises key interest rate more than expected and decides on new crisis instrument.