Russia’s central bank cuts key interest rate to 8.0%

• The Bank of Russia cut its key interest rate to 8.0 percent from 9.5 percent.
• But it warned that “the external environment for the Russian economy remains challenging”.
• Annual inflation is expected to drop from 12-15 percent to 5-7 percent in 2023.

Russia’s central bank on Friday cut its key interest rate to below the level seen before President Vladimir Putin sent troops into Ukraine in February.

The Bank of Russia cut its key interest rate to 8.0 percent from 9.5 percent, pointing to a “further slowdown in annual inflation”.

But it also warned that “the external environment for the Russian economy remains challenging.”

Days after President Vladimir Putin sent troops into Ukraine and the West pummelled Moscow with sanctions in response, the central bank hiked its key rate to 20 percent from 9.5 percent to prop up the plunging ruble.

Since then, the ruble has staged a spectacular rebound, leading the central bank to repeatedly cut its key rate to tame the Russian currency’s rise.

“The Central Bank of Russia keeps its foot on the accelerator,” Capital Economics said in a note to clients, adding it expected interest rates to end the year at around 7 percent.

The central bank said in a statement that it expected annual inflation to edge down to 12-15 percent this year, to 5-7 percent in 2023, and return to 4 percent in 2024.

The statement said companies were still facing difficulties with production and logistics.

“However, their business sentiment is gradually improving as suppliers of finished products, raw materials and components, as well as sales markets, diversify,” the central bank said.

“Consumer activity remains subdued, but is beginning to recover, including amid a gradual increase in imports of consumer goods.”

The central bank said it would hold its next rate review meeting on September 16.

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