Russia’s central bank cuts key interest rate to 11%, citing decreased stability risks

MOSCOW, Russia: The Russian central bank has cut its key interest rate by 300 basis points for a third time since its emergency hike in late February, citing cooling inflation and a recovery in the ruble.

The Central Bank of Russia lowered its key interest rate from 14 to 11 on Thursday due to a slowing in inflation and the recovery of the ruble.

After an extraordinary meeting, policymakers decided to cut the key rate by another 300 basis point, the third reduction since the emergency hike in the key rate in the aftermath of Russia's invasion of Ukraine. Capital control measures were imposed by the CBR in order to mitigate the impact of sanctions and prop up the ruble.

The current price growth rates have slowed down according to the latest weekly data. The ruble exchange rate dynamics as well as the noticeable decline in inflation expectations of households and businesses ease inflation pressure.

The annual inflation slowed down to 17.5% as of 20 May from the Bank of Russia's April forecast.

After falling to a record low of 150 against the U.S. dollar on Mar. 7, the currency has since rebounded to a two-year high.

The ruble traded at 60.80 to the dollar.

The CBR said Thursday that funds had continued to flow into fixed-term ruble deposits.

The Russian economy is still challenged by external conditions. Some capital control measures were relaxed due to a decrease in financial stability risks.

The central bank said future interest rate decisions would accommodate actual and expected inflation dynamics, relative to its target and efforts to transform the Russian economy for the long term.

The next meeting will be held on June 10 and it was suggested that further rate reductions could be on the cards.

According to the Bank of Russia's forecast, the annual inflation will decrease to 7.0% in 2023 and return to 4% in 2024.

The second 300 basis point cut within a month is unlikely to continue, according to a note by William Jackson, chief emerging markets economist at Capital Economics.

The language used in Thursday's announcement was different from what policymakers said in April.

The key point is that policymakers are able to row back emergency economic measures because of high oil and gas revenues. Jackson said that a further easing of capital controls and additional rate cuts are likely.