The head of the Russian central bank signals the end of the interest rate cuts

Elvira Nabiullina at the Saint Petersburg Economic Forum

The president of the Russian central bank last announced a reduction in the key interest rate on July 22.

(Photo: Reuters)

Riga The Russian central bank is bracing itself against the recession with another key rate cut. It cut the key interest rate by 0.5 percentage points to 7.5 percent on Friday. It was the sixth downward move in monetary policy this year, but the smallest since the start of Russia’s war of aggression against the US Ukraine on February 24th.

The head of the central bank, Elwira Nabiullina, also signaled an imminent end to the interest rate cuts. “Most likely, the interest rate adjustment cycle is now coming to an end,” she said at a press conference in Moscow on Friday. From now on, they want to “maintain a neutral monetary policy course”. Inflation risks are currently increasing, “we now have less room to lower the key interest rate,” said Nabiullina. Before the start of the war, the key interest rate was still 9.5 percent.

On February 28, the central bank raised interest rates to 20 percent, held the level in March and started lowering in surprisingly large steps from April onwards. Since then, Nabiullina has been considered the most important woman in Putin’s war economy. Western experts also believe that without their resolute and professional management, Russia’s economy would suffer far more from the sanctions.

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Today’s decision did not surprise experts: Experts interviewed by the news agency Reuters had expected the cut, as did most of the experts interviewed by the news agency Bloomberg.


Also Tatha Ghose, currency analyst at the Commerzbank, had expected the step in advance. According to him, the institution is trying so that the declining inflation and to take into account the comparatively strong ruble exchange rate. In fact, the inflation rate went up Russia declined in the past few months, from almost 18 percent in April to around 14 percent now. “This shows that the monthly inflation rate still has room to go down,” said the analyst.

At the same time, however, there is a slowdown in the fall in consumer prices on a weekly basis and inflation expectations – a key factor for policymakers – are currently rising again after the government launched fiscal stimulus.

Central bank chief Nabiullina worried about high inflation expectations

This point also worries Nabiullina herself, as she said in a press conference after the meeting. “We are concerned about the fact that household inflation expectations are still high,” Nabiullina said. She also explained: “People prefer to save at the moment rather than consume”, and that there is “a high degree of uncertainty”.

In a statement, the central bank itself explained the decision as the further slowdown in annual inflation, which Russian monetary authorities attribute to both the influence of one-off effects and “subdued consumer demand”. At the same time, business activities developed better than assumed in July. However, the external environment for the Russian economy remains “challenging” and inflation expectations and corporate price expectations remain high.


Meanwhile, the ruble is even stronger than before the attack on Ukraine, also due to significant restrictions imposed by Moscow on capital movements.

(Photo: IMAGO/Silas Stein)

At the same time, the currency watchdogs around central bank chief Elvira Nabiullina canceled their orientation line for further monetary policy developments – known in technical jargon as forward guidance.

>> Read here: Central Bank Governor Nabiullina – The woman who saved Russia from collapse

According to the central bank, Russia’s gross domestic product (GDP) will shrink this year. The minus will probably be in the upper part of a range of four to six percent. After the invasion of Ukraine and sanctions imposed by the West had the Russian economy experienced a steep downward slide in the spring. The gross domestic product (GDP) shrank by 4.0 percent in the months of April to June compared to the same period of the previous year.

With the downturn should according to the central bank in Moscow However, the strong upward pressure on prices will gradually subside: For this year, annual inflation of 11.0 to 13 percent is to be expected, which will fall to five to seven percent in 2023, the central bank experts predict. For 2024, the central bank is expected to reach its inflation target of four percent again. In August, the inflation rate was 14.3 percent.

CommerzbankAccording to analyst Ghose, the key interest rate for the Russian central bank is now primarily “important in terms of fighting inflation in the longer term.” support through this sanctions shock – instead of taking technical steps to counteract inflation.” The economy now needs low interest rates “to boost investments that will be necessary for import substitution in the next few years.”

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