RUSSIA’S central bank lowered interest rates to their level before the invasion of Ukraine, as the ruble remains under pressure to appreciate and the economy reels from sanctions.
Following a large cut at an extraordinary meeting two weeks ago, policymakers used their scheduled session yesterday to reduce the benchmark again, this time to 9.5% from 11%.
With rates now down sharply from their post-war peak, the focus is increasingly on bringing relief to consumers and turning around the recession-struck economy, especially as disruptions to trade could create new risks for prices.
“The economy is shrinking and the situation will get worse,” Dmitry Polevoy, economist at Locko-Invest in Moscow, who revised down his call and predicted a cut to 9%-9.5%, said before the announcement.
“Demand for credit is low, the banking system is back up on its feet, the ruble is appreciating without restraint but the real rate is still high by historical standards.”
If the worst of inflation fears don’t materialise, the key rate can reach 8% by the end of the year, according to Polevoy. The central bank doesn’t expect to achieve its 4% target until 2024.
A swoon in consumer spending and intensifying gains in the ruble, which has been shielded by capital controls, are helping keep inflation in check after an intense but brief run-up in prices.
Authorities now need to revive domestic demand to balance out surging exports of commodities that have powered the currency’s rebound to near the strongest in four years. — Bloomberg
source: The Star Online
