The Central Bank of Russia lowered this Wednesday the reference interest rate from 14% to 11%, higher than the two points expected by analysts, after detecting a slowdown in price increases in part due to the appreciation of the ruble, which is at four-year highs against the dollar and seven-year highs against the euro. The entity has anticipated further reductions in the future.
The entity shot the rate from 9.5% to 20% after the invasion of Ukraine to avoid uncontrolled inflation and a collapse of the ruble. But the rise in prices has been moderated by constrained demand - from 17.8% in April to 17.5% in May - and the currency is now at record highs due to a trade balance triggered by income from energy and raw materials, while imports have been reduced. In addition, lending activity remains weak, limiting inflationary risks and forcing monetary conditions to ease.
"External conditions for the Russian economy remain challenging and considerably limit economic activity," it is acknowledged in a statement. In turn, "the risks to financial stability have decreased somewhat, allowing for a relaxation of some capital control measures." After the announcement the ruble fell about 3% in its crossing with the dollar.
Today's decision was made at an extraordinary meeting convened just one day earlier. In April, the rate was already lowered to 17% and then to 14%. Thus, chain three three-point sales in a row.
Despite sweeping sanctions on Russia, rising export prices and capital controls have dampened demand for foreign currency and sent the ruble soaring. Efforts by the authorities to curb gains, including the relaxation of capital controls earlier this week, have so far not helped much. Since the beginning of the invasion, capital controls have made it impossible to sell assets and repatriate profits.
On the inflation side, prices had risen due to stockpiling after the invasion, but the collapse in demand that has followed has tempered the trend.
