Russia’s Central Bank lowered its key interest rate from 14.5% to 14.25% on Friday, marking its ninth consecutive cut since beginning a policy of monetary easing after previously hiking borrowing costs to a two-decade high to curb surging inflation.
The 25-basis-point cut was a clear signal that policymakers are taking a more cautious approach in easing rates than initially anticipated, as analysts had broadly expected a larger, 50-basis-point cut.
Inflation expectations remain high due to the global energy crisis sparked by the war in Iran, as well as Ukrainian drone attacks on Russian oil refineries and supply lines, which have led to a gradual uptick in gasoline prices and shortages in some parts of the country.
Policymakers said in a press release that annual inflation stood at 5.6% as of June 15. Despite current pressures, the Central Bank maintained its forecast that inflation will cool to between 4.5% and 5.5% later this year, eventually hitting its 4% target in 2027.
“Fiscal policy over the three-year horizon will be more accommodative than previously expected. This may require a higher key rate path than assumed in the April baseline scenario,” the Central Bank said, suggesting higher borrowing costs will stick around longer than expected.
Specifically, policymakers said that “proinflationary risks have increased due to a temporary decline in motor fuel production.”
Russian stocks fell after the rate-cut announcement. The ruble-denominated MOEX benchmark slid more than 1.6% in afternoon trading.
The Central Bank will hold its next key rate meeting on July 24.
This is a developing news story.
