Central Bank of Russia expected to cut interest rates

The Central Bank of Russia convenes today to discuss cutting the key interest rate from 6%. Though inflation rose in

The Central Bank of Russia in Moscow

Photo: Wikipedia Commons

The Central Bank of Russia convenes today to discuss cutting the key interest rate from 6%.

Though inflation rose in March and April, the Central Bank does not fear a rate cut as the global economic slowdown will have a deflationary effect on the economy. Instead, the bank has chosen an expansionary policy with gradual rate reductions. It hopes to stabilise an economy—expected to contract by 1.4% this year—that’s suffering from low oil demand and lockdowns across major cities.

Expect the Central Bank to cut interest rates to around 5.5%. Due to Russia’s dependence on oil exports and the tenuous OPEC+ agreement limiting production, the bank (and President Putin) may want to keep the option of more rate cuts open in case further energy disruptions appear in the near future. The Central Bank will also sell off more of its $550 billion in foreign currency reserves to compensate for the lost oil revenue in the state budget. This will be imperative to float the economy through the lockdown, which may last until COVID-19 cases drop-off in mid-June.

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