Russia’s central bank cut its key interest rate by a full percentage point to 20% on Friday, marking its first reduction since 2022. The move comes as the war economy cools and inflation slows. According to the Central Bank of Russia (CBR), domestic demand continues to outstrip the economy’s capacity to expand supply, but growth is gradually becoming more balanced.
The rate cut was expected by most economists polled by Bloomberg and follows a decline in inflation, which has fallen to 9.8% in June, after months of double-digit growth. The CBR said its main focus is reducing inflation, with an eye on returning it to its 4% target in 2026.
However, the bank stressed that the rate cut does not signal a rapid reduction in rates and will maintain monetary conditions as tight as necessary to achieve this goal. Despite easing inflationary risks, they still outweigh forces driving down consumer prices in the medium term.
Russia’s economy has been running hot since summer 2023, fueled by soaring government military-linked spending. The CBR had kept interest rates at a record 21% since October last year, but high borrowing costs have weighed on demand from businesses and consumers.
The bank now aims to rein in growth and curb inflation, which has climbed 35% since the full-scale war against Ukraine began. “It is inevitable, but we must act carefully to avoid excessive cooling,” President Vladimir Putin warned in March.
Source: https://www.ft.com/content/545c02d0-fa83-495f-8e18-1d4663910a11