The Russia Central Bank slits its key interest rate to 11%. They added that there would be more cuts to come this year. The cutting of key interest rates emerged since April to 14%. The cause was due to the launching of Russia military operation in Ukraine triggering 20% cuts. Currently, a cumulative of 900 basis points cuts would inflict another prospect of key rate reduction in the upcoming meetings.
In a statement, the bank testifies that inflationary pressure eases the rouble exchange rate dynamics. In addition, it eases the noticeable decline in inflation expectations of households and businesses. The rouble as a result, has turned into the world’s best-performing currency this year. This is because the capital controls buoyed this. Russia has imposed financial stability risks as well as defended itself against the sweeping western sanctions.
The central bank is highly positive that economic challenges won’t disrupt financial stability. It somehow opens to ease some capital control measures. Capital economics analysts agreed on ruble performance. The analyst said that the ruble has given policymakers room to reverse emergency measures.
They suspect that CBR won’t continue easing pace, but the cutting rate will. The ruble in this case, has shown limited reaction to the central bank’s action. It extends intraday losses and slides to 60.90 against the dollar. So it was down by 2.7%. The central bank could continue the cutting rate by 50-100 basis points. This is at the nest rate-setting meeting for June 10.
The bank expects that it could attain the stabilization more when Governor Elvira Nabiullina speaks at the banking conference. However, the central bank did not say anything about the 2022 inflation forecast. Previously, the inflation reached 10%-23% but will recover by 5-7% in 2023.
