Russia reduces interest rate to 11% boosted by the success of the ruble

Russia’s central bank slashed interest rates to 11% for the third time in less than a month, boosted by lower inflationary pressures due to the success of the Russian ruble.

This was disclosed by the Russian Central Bank in a press release seen by Nairametrics.

According to the bank, funds continue to flow into fixed-term ruble deposits while lending activity remains subdued. This reduces pro-inflationary risks and necessitates monetary easing.

What the Bank is saying

The Bank said,  “The Bank of Russia Board of Directors decided to cut the key rate by 300 basis points to 11.00% per annum effective from 27 May 2022.

The Bank stated that the move was due to the lowered inflationary pressure. “The latest weekly data point to a significant slowdown in the current price growth rates. Inflationary pressure eases on the back of the ruble exchange rate dynamics as well as the noticeable decline in inflation expectations of households and businesses,” it stated.

The bank added that “In April annual inflation reached 17.8%, however, based on the estimate as of 20 May, it slowed down to 17.5%, decreasing faster than in the Bank of Russia’s April forecast.”

What you should know

  • The result of a strengthened currency would be lower import prices for Russian citizens, implying that inflationary concerns would be alleviated.
  • At the time of writing this article, the Russian ruble was trading at 60 rubles to $1, indicative of a 20.78%  gain in the rubles within the past month.
  • Despite the sweeping sanctions placed by the west on Russia, rising exports and capital controls have slashed demand for foreign cash, sending the ruble to new highs not seen since 2018.
  • Nonetheless, the move demonstrates the central bank’s desire to halt the ruble’s meteoric rise in favour of economic growth.
  • Based on the Bank’s forcast, annual inflation will decrease to 5.0–7.0% in 2023 and return to 4% in 2024.

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