Page 104 - RusRPTAug22

8.2 Central Bank policy rate
The Central Bank of Russia (CBR) continued its aggressive rate cutting cycle on July 22, slashing rates another 150bp to 8%, well below pre-war levels.
The CBR more than doubled the interest rate to 20% on February 28, a few days after Russian forces crossed the border into Ukraine, to contain the inevitable shock to the currency and to contain soaring inflation. The fast action seems to have worked, as inflation has begun to fall from its peak of 17.8% in April to 15.9% in June (chart).
As the Russian economy has stabilised the CBR has since cut the rate three times, bringing the base rate back to the pre-war level of 9.5% on June 10. Analysts believe that more cuts may be on the cards before the end of this year as a looming recession will further reduce inflationary pressures, but that the scope for big cuts is now limited as the easing cycle is close to its end in the current environment.
“We think the scope for further large cuts is now limited and we expect interest rates to end the year around 7.00%,” Capital Economics said in a note. “That brings the total amount of easing since April to 12 ppts and takes interest rates below their level of December last year. The central bank emphasised that inflation risks have continued to ease. The statement noted that “current consumer price growth rates remain low” and that “short-term disinflationary risks have grown.” The affressive cut came in at the top of the expectations range of 25bp to 150bp, with the consensus expectations being for only a 50bp key interest rate cut. This confirms earlier speculation that the CBR’s priorities have switched from containing inflation to promoting growth.
This was indeed confirmed by the revised GDP decline forecast by the CBR that instead of the previous 8-10% recession now expects the recession to be contained within a 4-6% GDP decline range. This is in line with the most recent forecasts of the recession being contained within 5% and the optimistic outlook of the Minister of Economic Development, Maxim Oreshkin.
To remind, Russia's GDP contracted by 4.3% in May (chart).
While most of the rest of the world is battling with soaring inflation and growing stagflation concerns, Russia is the only country in
104 RUSSIA Country Report October 2020 www.intellinews.com