Bank of Russia cuts key rate to 7.5% per annum

Bank of Russia cuts key rate to 7.5% per annum

The Board of Directors of the Bank of Russia once again decided to lower the key rate — this time by 0.5 percentage points, up to 7.5% per annum, the regulator announced on Friday.

"On 16 September 2022, the Bank of Russia Board of Directors decided to cut the key rate by 50 basis points to 7.5% per annum. Current consumer price growth rates remain low, contributing to a further slowdown in annual inflation. This is due to both the influence of a set of one-off factors and subdued consumer demand. Developments in business activity are better than the Bank of Russia expected in July," the statement said.

Russia’s GDP contraction by the end of 2022 may be closer to the upper bound of the 4-6% range forecasted in July, though Q2 GDP and high-frequency indicators point to stronger dynamics of business activity than the Central Bank expected in July. According to the regulator, "the external environment for the Russian economy remains challenging, invariably putting significant constrains on economic activity. Inflation expectations of households and price expectations of businesses remain elevated."

The regulator lowered the forecast for inflation for 2022 to 11-13% from 12-15%. "Taking into account emerging trends in consumer prices, the Bank of Russia expects annual inflation to decline to 11.0 - 13.0% by the end of 2022. Annual inflation will continue to decline under the influence of base effects, among other things, despite the expected further increase in current rates of price growth. According to the Bank of Russia’s forecast, given the monetary policy stance, annual inflation will decline to 5.0 - 7.0% in 2023 and return to 4% in 2024," the statement said.

At the same time, annual inflation in Russia in August fell to 14.3% and, according to estimates, fell to 14.1% as of September 9. According to the regulator, "Current consumer price growth rates remain low, contributing to a further slowdown in annual inflation. Annual inflation declined in August to 14.3% (after 15.1% in July); according to a 9 September estimate, it is down to 14.1%."

"Moving forward, in its key rate decision-making, the Bank of Russia will take into account actual and expected inflation dynamics relative to the target and economic transformation processes, as well as risks posed by domestic and external conditions and the reaction of financial markets," the Bank of Russia said.

The Board of Directors of the regulator will hold its next meeting on the key rate on October 28, 2022.

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