By Scott Kanosky
Investing.com – It cut its key interest rate by 50 basis points to 7.5% on Friday, in line with economists’ estimates, as it cited continuing economic risks from Western sanctions despite easing inflationary pressures.
This is the sixth consecutive reduction in borrowing costs this year. The central bank had previously raised the key rate to 20% from 9.5% earlier in 2022 to offset the ruble’s depreciation after the outbreak of the war in Ukraine.
By cutting interest rates, the central bank aims to relieve upward pressure on the ruble, make lending cheaper, and thus help stem some of the economic damage from European and US sanctions imposed on Russia in response to the conflict. It was trading at 60.00 against the dollar as of 11:08 GMT (07:08 EST).
In a statement, the central bank said its latest rate decision was driven by weak consumer demand and other “one-off” factors, which slowed annual inflation. However, she cautioned that cost expectations for both households and businesses remain “high”.
“Further tightening in foreign trade and financial restrictions may create significant inflation risks. It could lead to a further decline in the potential of the Russian economy than was expected in the base scenario,” the central bank said.
It added that despite the rebound in business activity in July, the external environment for the Russian economy remains “difficult” and puts significant pressures on production and logistics for companies.
This year is expected to be closer to the “upper limit” of his forecast in July of a contraction of 4% – 6%. Meanwhile, the central bank’s annual inflation estimates were revised down to a range of 11%-13% from earlier expectations for a slowdown of 12%-15%.
