Russia: Central bank cuts key interest rates surprisingly sharply

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Central Bank of Russia: Hoping for inflationary pressure to ease

Photo: Yuri Kochetkov / dpa

With a surprisingly sharp interest rate cut, Russia's central bank is trying to give the economy, which is groaning under Western sanctions, some momentum again.

It cut the key interest rate by one and a half points to 8.0 percent on Friday.

It was the fourth rate cut this year.

Experts polled by Reuters had only expected a drop to 9.0 percent.

The central bank intends to examine in the further course of the year whether further easing steps are necessary.

The environment for the domestic economy remains "challenging" and weighs heavily on the economy.

According to central bank forecasts, Russia's gross domestic product will shrink by four to six percent this year.

The recession is expected to continue in 2023, albeit to a lesser extent.

The invasion of Russian troops into Ukraine at the end of February and the subsequent sanctions imposed by the West are affecting Russia's economy.

At the same time, the central bank expects the strong upward pressure on prices to gradually subside: annual inflation of twelve to 15 percent is expected for this year, which will fall to five to seven percent in 2023.

For 2024, the central bank is expected to reach its inflation target of four percent again.

In the middle of the month, inflation in Russia was 15.5 percent.

In order to prevent the ruble from collapsing, the central bank headed by Elvira Nabiullina raised the interest rate after the invasion of Ukraine from 9.5 percent to 20.0 percent and then lowered it further and further.

mike/Reuters