Russia’s central bank surprised by a 14 percent drop in interest rates – Executive Digest

Russia’s central bank said it would cut interest rates to 14 per cent on Friday, a bigger-than-expected cut, and also said it should make further cuts this year to cope with the economic contraction and high inflation.

Days after the invasion of Ukraine, Vladimir Putin’s central bank carried out an emergency rate hike from 9.5 per cent to 20 per cent and last unexpectedly cut interest rates to 17 per cent in early April.

“If the situation develops in line with the baseline forecast, the Russian central bank will see room for a rate cut in 2022,” the central bank said in a statement. “The dynamics of the ruble exchange rate will continue to be a significant factor in shaping the course of inflation and inflation expectations.”

As forecast, the central bank said inflation is expected to accelerate to 18-23 per cent in 2022 before decelerating to 5-7 per cent in 2023 and returning to the 4 per cent target in 2024.

“The external environment for the Russian economy remains challenging and significantly limits economic activity. As price and financial stability risks no longer increase, circumstances have allowed interest rates to fall, ”the central bank said. “Recent weekly data suggest a slowdown in current price growth due to the strengthening of the ruble and a slowdown in consumer activity.”

The Governor of the Central Bank of Russia, Elvira Nabiullina, will hold a press conference at 3 p.m. in Moscow (1 p.m. in Portugal), the first press conference since the start of the war.

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