Russian central bank further eases monetary policy

At an unscheduled meeting on May 26, the Central Bank of Russia decided to lower the key rate by 300 basis points to 11 %. This was a third consecutive rate cut and altogether the key rate has now reduced by 9 percentage points since the beginning of April. The CBR guidance keeps open the possibility of further rate cut at its upcoming meetings. The CBR’s next scheduled rate review meeting is today (June 10).

According to the CBR, inflation pressures have been eased by reduced inflation expectations of households and firms, as well as ruble appreciation. The ruble’s exchange rate plummeted in the wake of Russia’s February 24 invasion of Ukraine, but, following currency controls and current account surplus, ruble’s external value is now higher than its pre-invasion level. The rise in prices has been further mitigated by growth in bank deposits and reduced credit growth.

Although May consumer prices in Russia were up by 17 % y-o-y, inflation has slowed in recent weeks. Food prices in May were up by 20 % y-o-y, non-food goods 19 % and services 10 %. Consumer prices in May were up 12 % from the start of the year. The CBR’s forecast sees 12-month inflation slowing to 5—7 % in 2023 and returning to its 4 % target level in 2024.

 The CBR again lowered its key rate

Sources: Macrobond, CBR, Rosstat and BOFIT.