Russia’s central bank said Friday that it would cut interest rates by 150 basis points—in percentage points, one-and-a-half percent—its first cut since September 2022. In response, the bank recently cut that exorbitant rate by a point, to 20%. That’s the most since the new benchmark rate was adopted in 2013. According to government ministers, inflation pressures in the large South American country are beginning to let up. Back in April, when the overall inflation rate was at a 6.2% annualized rate.
The announcement reflects ongoing efforts by the central bank to stabilize the economy amidst the impacts of the full-scale invasion of Ukraine in February 2022. The conflict has put unprecedented pressure on price and sent the Russian economy reeling, reshaping itself through a brutal winter of war. In that context, the central bank has held firm on a restrictive monetary policy. Since last October, they’ve kept the rates high at 21%.
In response to the rate cut, the U.S. dollar gained 2.72% against the Russian ruble, indicating market reactions to Russia’s economic developments. The central bank is determined to restore inflation to its 4% target. It reinforces that monetary policy will remain restrictive for a long time in order to achieve this objective.
Even with these actions, inflation pressures are starting to lighten up. Implicitly this means the anticipated average inflation rate in Q1 2025 was 8.2%. This provides some hope that, even in the face of long-term challenges, the economy is on the mend.
“While domestic demand growth is still outstripping the capabilities to expand the supply of goods and services, the Russian economy is gradually returning to a balanced growth path,” – Russia’s central bank
Beginning with the ruble’s collapse from March 2022, import prices have increased substantially. This latest increase is adding to the squeeze being felt by consumers and businesses alike. President Vladimir Putin has called the inflation rate “alarming,” underscoring the critical need to tackle this economic crisis.
Despite the stormy waters now confronting Russia, the central bank’s recent actions are a cause for cautious optimism. Their goal is to achieve moderate inflation alongside robust economic growth. The future will depend on the effectiveness of continued monetary policy efforts and external economic conditions affecting the ruble and overall market confidence.