Despite western sanctions: the Russian central bank lowers the key interest rate significantly

In response to the sanctions imposed by the West, Russia raised its key interest rate sharply at the end of February.

Despite western sanctions: the Russian central bank lowers the key interest rate significantly

In response to the sanctions imposed by the West, Russia raised its key interest rate sharply at the end of February. Because the ruble has since recovered, the Russian central bank has now lowered its key interest rate for the third time in a row. She expects inflation to fall.

The Russian central bank has eased its monetary policy again despite the ongoing sanctions against the country. The central bank in Moscow announced that the key interest rate would be reduced by 3.0 percentage points to 11.0 percent. Economists had only expected an interest rate cut to 11.5 percent on average. The central bank announced further cuts this year. It is the third rate cut in a row.

At the end of February, the central bank raised the key interest rate drastically by 10.5 points to 20 percent. In doing so, she was reacting to the sanctions imposed by the West after the start of the war against Ukraine. With its interest rate hike, the central bank wanted to counteract the devaluation of the ruble and the risk of inflation. The ruble has recently recovered significantly. It is currently slightly above the level that prevailed before the start of the war.

The Russian central bank expects inflation to fall. "Inflationary pressures are fading due to the dynamics of the ruble exchange rate as well as the noticeable fall in inflation expectations of households and businesses," the statement said. The decline in the inflation rate from 17.8 percent in April to 17.5 percent in May was stronger than expected. The Russian central bank is aiming for an inflation rate of 4 percent.

"External conditions for the Russian economy remain difficult and significantly limit economic activity," writes the central bank. "Risks to financial stability have eased somewhat, allowing some capital control measures to be relaxed." After Western countries imposed sanctions, Russia introduced capital controls to prevent the ruble from depreciating.

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