Russia’s Central Bank has slashed interest rates to their lowest-ever level in a bid to support the economy as it emerges from the coronavirus pandemic.
In a move widely expected by financial markets, the Central Bank cut a full percentage point off Russia’s key rate to bring it down to 4.5%.
Amid the biggest shock to the economy in a generation, inflation has fallen to 3.1%, the Bank estimated — below its official 4% target — and is expected to stay low for at least the rest of the year, as the economic recovery will continue into 2022.
The Bank said it would take interest rates even lower if growth does not accelerate faster than its current expectations. Governor Elvira Nabiullina has previously said the Russian economy is likely to contract by 4-6% in 2020. Some other independent forecasts predict a fall in GDP of up to 8%.
Maxim Petrovich, senior economist at Otkritie Bank, said rates could fall to 4% before the end of the year, highlighting how stability on the financial markets and in the value of the ruble have given the Bank’s policymakers more flexibility to move interest rates down to support the economy, rather than fight sharp devaluation and currency volatility as in 2014.
The ruble was largely unmoved on the news, trading at 69.5 against the U.S. dollar.