MOSCOW, Russia: Diverging from its Western counterparts, the Russian central bank cut its key interest rate this week, one month after returning the rate to the same level as before the country invaded Ukraine.
Stressing that consumer prices are still easing partly because consumer demand has been falling, the bank lowered its key rate by 1.5 percentage points to 8 percent.
Inflation levels have “significantly decreased,” reaching spring 2021 levels, while a decline in business activity was slower than expected in June, it said in a statement.
However, “the external environment for the Russian economy remains challenging and continues to significantly constrain economic activity,” it added.
After the invasion began on 24th February, which resulted in comprehensive Western sanctions, the central bank hiked the nation’s rate to as high as 20 percent.
Late last week, the rouble traded at 58.8 to the U.S. dollar, making it worth more than the day before the invasion of Ukraine, when it took 78.8 rubles to purchase $1.
Annual inflation also fell to 15.9 percent in June, compared with 17.1 percent in May, and estimated it slid to 15.5 percent as of 15th July, it added.
During a news conference, central bank head Elvira Nabiullina said, “The recent essentially involuntary accumulation of savings is a compressed spring in the economy, which can cause dramatic consumption growth under certain circumstances. It can quickly speed up demand inflation when the offer of goods and services is limited.”
Meanwhile, other central banks are heading in the opposite direction by raising rates to combat inflation caused by Russia’s invasion of Ukraine.
As high energy prices caused by Russia’s invasion drove up consumer prices to 8.6 percent, the European Central Bank unexpectedly raised its rate by half a percentage point.
High energy costs are benefiting Russia, a major oil and natural gas exporter, but economists said that despite energy income growing and the central bank propping up indicators like the exchange rate, the long-term impact of the country’s global isolation will lead to economic stagnation and lower incomes.
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