Russia’s central bank has moved in the opposite direction of many other parts of the world, dropping interest rates by 1.5 percentage points to 8 percent on Friday, even lower than it was before the country invaded Ukraine.
Banks said last month’s inflation fell from about 17% in May to 15.9%, but the ruble’s strength reached a seven-year high against the dollar last week as well as “suppressing” consumer demand. Said it was slowing down because of. Moon. The rate cut was bigger than the economist expected.
Since Russia’s invasion of Ukraine in February, the war has disrupted exports of wheat and other commodities, causing energy and food prices around the world to skyrocket. Meanwhile, countries can no longer guarantee the safety of Russia’s natural gas supply. In response, major central banks are raising more and more rates to curb future inflation. On Thursday, the European Central Bank raised interest rates for the first time in more than a decade.
But in Russia, inflation has slowed after the surge in inflation shortly after the aggression, and the economy has not experienced the expected significant decline from Western sanctions. The central bank has reversed the 10.5 percentage point rate hike introduced at the beginning of the war to 20 percent. In the short term, slowing inflation has given banks room to lower interest rates, but the long-term outlook for the Russian economy is dire.
“The external environment in Russia’s economy remains difficult and continues to significantly curb economic activity,” the central bank said in a statement on Friday, although business activity did not slow as much as banks expected last month. Enterprises are still struggling with production and logistics as imports plummet as sanctions separate Russia from the rest of the world.
Banks predict that the economy will shrink between 4% and 6% this year, much less than initially expected shortly after the start of the war. However, economic challenges come from the supply side, as companies are constrained by the impact of sanctions, the extent to which they can change their supply chains, and the slow replenishment of their stockpile of finished goods and raw materials. Few monetary policies can be done to support this.
The bank Inflation will be between 12% and 15% by the end of the year.
However, he said the course of the economy is determined by fiscal policy. If the government budget expands, monetary policy may need to be tightened to maintain inflation in order to return to the bank’s 4% inflation target.
