🎈 Up Big Today: Find today's biggest gainers with our free screenerTry Stock Screener

Russian central bank cuts key rate to 17%, signals further easing

Published 04/08/2022, 05:22 AM
Updated 04/08/2022, 06:40 AM
© Reuters. FILE PHOTO: A Russian one rouble coin is seen in this picture illustration taken April 5, 2022. REUTERS/Maxim Shemetov/Illustration

(Reuters) -The Russian central bank sharply cut its key rate to 17% on Friday and said future cuts were possible, as emergency steps had contained the risk to financial stability, brought deposits back to banks and helped limit the threat of inflation, it said.

Last month, the central bank kept its key interest rate at 20% following a massive emergency hike in February and said it would start buying OFZ government bonds, warning of an imminent spike in inflation and a looming economic contraction.

Russia sent troops into Ukraine on Feb. 24 on what it calls a "special military operation" to demilitarise and "denazify" its neighbour, prompting widespread Western sanctions.

On Friday, the central bank unexpectedly cut the key rate by 300 basis points, taking the decision ahead of its next regular meeting set for April 29.

It said the move reflected a change in the balance of risks of accelerated consumer price growth, a decline in economic activity and had contained the risk to financial stability.

"Financial stability risks are still present, but have ceased to increase for the time being, including owing to the adopted capital control measures. There is a steady inflow of funds to fixed-term deposits," its statement said.

Annual inflation in Russia accelerated to 16.70% as of April 1, its highest since March 2015 and up from 15.66% a week earlier, as the volatile rouble sent prices soaring amid unprecedented Western sanctions which cut Russia off the global financial markets and limited its trade with the outside world.

External conditions for the Russian economy remained challenging and were "considerably constraining economic activity", the central bank said, but added that it "holds open the prospect of further key rate reduction at its upcoming meetings".

The central bank added that inflation would continue to rise due to the base effect, yet the latest weekly data showed a slowdown in the price growth rate, also thanks to the rouble's growth.

"The tightening of monetary conditions already in place is partly offset by the lending support programmes launched by the government and the Bank of Russia, but it will continue to limit pro-inflationary risks," the statement said.

Russian analysts welcomed the ahead-of-schedule key rate cut, which some expected to start only in June, saying it showed that the central bank was confident in the emergency steps taken since Feb. 24.

© Reuters. FILE PHOTO: A Russian one rouble coin is seen in this picture illustration taken April 5, 2022. REUTERS/Maxim Shemetov/Illustration

"The rate is likely to be cut by another 100-200 bps in April, yet it will require additional positive dynamics on inflation and inflationary expectations," Dmitry Polevoy, head of investment at the Moscow-based brokerage Locko-Invest, said.

After Friday's decision, Polevoy improved his year-end key rate forecast to 11-12% from an earlier expected "no higher than 15%".

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.