The Russian Central Bank cut interest rates to 9.5 percent on Friday, the same level as in February before Russia’s ongoing invasion of Ukraine, indicating that inflation in Russia may have peaked after reaching a two-decade high following a slew of Western sanctions.
Crucial Facts
On Friday, the central bank dropped interest rates by 150 basis points, from 11% to 8%, in the latest wave of decreases since the main rate was raised to 20% on February 28.
The Russian central bank recognised in a press statement that the external environment for the country’s economy is still “challenging and considerably constrains economic activity.”
Despite this, the regulator stated that inflation was dropping faster than expected and that the country’s economic contraction was lower than expected in April.
Annual inflation was 17 percent as of June 3, down from a two-decade high of 17.8 percent in April, according to the central bank.
By the end of 2022, inflation is predicted to be between 14 and 17 percent, then decline to 5-7 percent in 2023 before reverting to 4 percent a year later, according to the regulator.
The ruble’s exchange rate versus the dollar as of Friday morning was 57.03. The Russian ruble fell to an all-time low of 150 to the dollar in early March, but has subsequently recovered thanks to the Kremlin’s determination to severely restrict money transfers overseas.
Important Background
While experts are suspicious of the ruble’s long-term viability, multinational corporations that were forced to leave Russia owing to sanctions have suffered significant losses. Russia has refused to return passenger jets that were leased to the country’s airlines by companies like Ireland’s AerCap Holdings, which has written off about $2.7 billion as a result of the withdrawals.
