Russia’s central bank said on Friday it would cut its interest rate to 17% from 20% from Monday as risks to the country’s financial stability eased thanks to capital controls.
The unexpected rate change came after the ruble recouped most of its losses since Russia invaded Ukraine. The central bank said inflation would continue to rise, but recent data had indicated a slowdown in price increases, partly due to the rouble’s gain. The annual inflation rate approached 17% at the start of April, but each week the inflation rate has slowed to just under 1%.
At 17%, Russia’s interest rate remains well above normal. The rate more than doubled at the end of February – from 9.5% to 20% – after the ruble plunged following the invasion of Ukraine and the central bank took emergency measures to stop outflows money from the country. While the rate will be lowered slightly, the central bank said on Friday that the “external conditions” of the Russian economy were still “challenging” and restraining activity.
On Friday, the UK government said Russia was heading into its “deepest recession since the collapse of the Soviet Union”, estimating the economy could shrink by up to 15% this year.
But Russia’s central bank said further rate cuts could be announced at future meetings depending on the path of inflation and economic growth. The next scheduled policy meeting is April 29.