Russia’s Central Bank has cut interest rates to their lowest level since 2012, and warned Russia is on course for a deep recession this year.
The decision — widely expected by the markets — to cut rates from 6% to 5.5% is the first shift in monetary policy from governor Elvira Nabiullina since the outbreak of the coronavirus pandemic.
The Bank warned Russia should brace for a hard economic shock as a result of both the economic lockdown at home and the collapse in global demand for energy which has sent oil prices down 70% this year. The bank predicted GDP will fall by between 4-6% in 2020, in the first public forecast of the economic damage of the coronavirus published by the Russian authorities.
A fall of that size would effectively wipe out the last four years of economic growth following the 2015 crisis, when Russia’s GDP dropped by almost 8%. The prediction is in line with others made by groups such as the International Monetary Fund (IMF), although some economists warn the picture is deteriorating rapidly and that Russia could be in for a 10% crash.
The Bank said it stands ready to cut rates further should the situation develop in line with its forecast. The ruble gained slightly on the announcement, climbing 0.5% to 74.4 against the U.S. dollar.