CBR lowers key rate

BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/19

Effective Tuesday (May 5), the Central Bank of Russia lowered its key interest rate by 1.5 percentage points to 12.5 %. It was the third rate cut this year. The central bank said the move reflected lower inflation and a continuing weak outlook for growth.

The CBR said it now expects inflation to cool faster than it had predicted earlier this year due to the ruble’s recent exchange rate rebound and a sharp decline in consumer spending caused by the drop in real incomes.

In April, the rate of inflation was 16.4 %, down slightly from March. The CBR expects that inflation will fall to 8 % by April 2016 and reach the target level of 4 % in 2017.

Inflation and CBR’s key rate, %, 1.1.2014–8.5.2015
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Sources: Rosstat and CBR

The CBR also noted that interest rates generally have fallen a bit since its previous key rate cuts in January and March. Even so, the central bank conceded that interest rates remain relatively high. While the situation is favourable for attracting ruble deposits, it slows the expansion of credit needed to promote economic development.

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