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Russia’s Central Bank cuts key rate to 14%
“The external environment remains challenging for the Russian economy and constrains economic activity significantly. With price and financial stability risks no longer rising, the conditions for a reduction in the key rate emerged,” the regulator said in a statement. “The latest weekly data show a slowdown in the current price growth rate driven by the ruble strengthening and the slump in consumer activity. Import substitution effectiveness, as well as the scope and speed of recovery in imports of finished goods, raw materials and components will become important factors determining further inflation dynamics.”
The Central Bank recalls that its monetary policy will take into account the need for the economy restructuring and ensure the return of inflation to target in 2024.
As previously reported, following an extraordinary meeting of the Board of Directors on February 28, the Bank of Russia sharply raised its key rate by 10.5 percentage points to an all-time high of 20% per annum. At that time, the Central Bank stated that such an increase would ensure the growth of deposit rates to the levels necessary to compensate for the increased devaluation and inflation risks. “This will help maintain financial and price stability and protect household savings from depreciation,” the regulator said in a press release.
At its next meeting on March 18, the Board of Directors of the Central Bank decided to keep the key rate at 20%. The regulator said in a statement that against the backdrop of dramatic changes in the external environment, the sharp increase in the rate on February 28 supported financial stability and prevented an uncontrolled rise in prices. “The Russian economy is entering a phase of massive restructuring that will entail a temporary but inevitable period of higher inflation, largely driven by the adjustment of relative prices for a wide range of goods and services,” the Central Bank pointed out. “The monetary policy of the Bank of Russia will form conditions for the gradual adaptation of the economy to the new environment and the return of annual inflation to 4% in 2024.”
On April 8, 2022, following an extraordinary meeting of the board of directors, the regulator announced a reduction in the key rate by 3 percentage points to 17% per annum. “Risks to financial stability are still present, but have ceased to grow now, including, inter alia, the capital flow control measures,” the regulator noted in a statement of that time. “A steady inflow of funds to fixed-term deposits is in place. Annual inflation will continue to rise due to the base effect, but the latest weekly data show a significant slowdown in the current price growth rate, due to the dynamics of the ruble exchange rate, inter alia.” The Central Bank indicated that the tightening of monetary conditions was partially offset by lending support programs initiated by the government and the Bank of Russia, but it will, by and large, continue to limit pro-inflationary risks.
The key rate of the Central Bank reached its previous all-time peak in December 2014. Then the regulator sharply raised it by 6.5 percentage points to 17% per annum. “This decision is driven by the need to cap the devaluation and inflation risks that have increased significantly in recent times,” the press service of the Bank of Russia reported then.