Baltimore Sun

Russian central bank slashes key interest rate


MOSCOW — The Russian central bank diverged from its Western counterpar­ts by slashing its key interest rate Friday just a month after dropping it to where it was before the country sent troops into Ukraine.

The bank lowered its key rate by 1.5 percentage points, to 8%, saying consumer prices are still easing partly because consumer demand has been falling. It said inflation expectatio­ns have “significan­tly decreased,” reaching spring 2021 levels, while a decline in business activity was slower than expected in June.

However, “the external environmen­t for the Russian economy remains challengin­g and continues to significan­tly constrain economic activity,” the central bank said in a statement.

It had hiked the rate as high as 20% in the wake of the Feb. 24 invasion into Ukraine and the resulting Western sanctions that restrict dealings with Russian banks, individual­s and companies.

As sanctions and the exit of Western companies from Russia have led to global economic isolation, the central bank has managed to stabilize the currency and financial system by preventing money from leaving Russia and forcing exporters to exchange most of their foreign earnings into rubles.

The ruble traded at 58.8 to the dollar Friday, making it worth more than the day before the invasion of Ukraine, when it took 78.8 rubles to reach $1.

The bank said annual inflation fell to 15.9% in June, compared with 17.1% in May, and estimated it slid to 15.5% as of July 15. It cited “subdued consumer demand” and the ruble’s exchange rate for the drop.

“The recent essentiall­y involuntar­y accumulati­on of savings is a compressed spring in the economy, which can cause dramatic consumptio­n growth under certain circumstan­ces,” Russian central bank head Elvira Nabiullina said during a news conference. “It can quickly speed up demand inflation when the offer of goods and services is limited.”

The bank expects inflation to keep going down — from 12% to 15% this year, to 5% to 7% in 2023, and 4% in 2024.

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