Russia’s central bank cut interest rates on Friday in a bid to cushion the economy from the impact of western sanctions, saying the recent rebound in the rouble had eased inflationary pressures.
The Bank of Russia said it would lower its key interest rate to 17 per cent from its previous high of 20 per cent. It had more than doubled borrowing costs in late February in an effort to prop up the currency after the US and western allies responded to President Vladimir Putin’s invasion of Ukraine with harsh financial measures including the freezing of a large chunk of its foreign reserves.
With Friday’s unscheduled move, the central bank is shifting its focus to kick-starting Russia’s struggling economy now that efforts to stabilise the financial system appear to be bearing fruit.
“Today’s decision reflects a rebalancing of the risks of accelerating consumer price growth, declining economic activity and risks to financial stability,” the bank said.
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While it cautioned that “external conditions for the Russian economy” will “significantly limit economic activity”, it said risks to financial stability were no longer growing.
It also indicated it had seen a slowdown in the rates at which prices were rising, “owing to the rouble’s exchange rate dynamics.”
The rouble has rebounded from a steep decline immediately after the February 24 invasion as a result of stringent controls which curbed Russians’ ability to buy foreign currency and blocked foreigners from exiting their investments in Russia. The ruble traded at roughly 79 to the dollar on Friday, close to pre-invasion levels.
Economists at the Institute of International Finance have estimated that Russian gross domestic product will shrink by 15 per cent this year, wiping out a decade and a half of growth.
Analysts expect the central bank to announce further rate cuts.
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