Time for transformation: the Central Bank lowered the key rate to 14% per annum

The Bank of Russia lowered the key rate by three percentage points at once - from 17% to 14% per annum.

The decision was made on Friday, April 29, at a meeting of the Board of Directors of the Central Bank.

The change in the indicator occurs for the second time in a month.

“Risks for price and financial stability have ceased to grow, which created conditions for lowering the key rate.

The latest weekly data indicate a slowdown in the current rate of price growth due to the strengthening of the ruble and cooling consumer activity.

In the future, the situation on the commodity market should be stabilized by the successful implementation of import substitution programs.

In addition, an important benchmark for slowing down inflation will be the scale and speed of recovery in the supply of raw materials, goods and components from abroad, the Central Bank notes.

“The monetary policy pursued by the Bank of Russia will take into account the need for structural adjustment of the economy and ensure that inflation returns to the target (4% -

) in 2024,” the press service of the regulator emphasized.

The next meeting of the top management of the Central Bank is scheduled for June 10.

At the same time, the regulator admits the possibility of a further reduction in the key rate in 2022.

Note that the previous change in the key rate took place on April 8.

Then the Central Bank also reduced it by three percentage points - from 20% to 17% per annum.

The Bank of Russia went for such a significant reduction after it more than doubled the rate at the end of February, to a record 20%.

The regulator explained its decision by the need to maintain financial stability in the face of sanctions and increased risks.

Since February 2022, the United States, the European Union and a number of other countries have continued to impose ever new restrictions on Russia.

Thus, the West is reacting to Moscow's special operation to protect the Donbass republics from aggression from Ukraine.

In particular, the restrictions affected trade, the energy industry and the banking sector.

Nearly half of the country's gold and foreign exchange reserves (worth $300 billion) were frozen, and many international companies announced they were suspending operations or withdrawing from the Russian market.

The actions of the West provoked an emotional reaction of the Russian financial market.

So, if at the time of the announcement of the first restrictive measures, the dollar exchange rate fluctuated in the range of 76-80 rubles, and the euro exchange rate in the region of 86-91 rubles, then in early March the values ​​briefly rose above 121 and 132 rubles, respectively.

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To stabilize the situation, the government and the Central Bank took a number of anti-crisis measures.

In addition to raising the key rate, the regulator suspended trading in securities in Russia, limited the withdrawal of capital abroad, closed access for foreign players to exchange trading, and also introduced a temporary procedure for the circulation of currency in the country.

At the same time, the authorities canceled VAT for citizens when buying gold and obliged exporters to sell 80% of their foreign exchange earnings.

Due to operational actions, the ruble has already managed to fully win back sanctions losses.

Now the Russian currency has strengthened against the dollar to the levels of November 2021, and against the euro, the ruble has returned to the pre-pandemic values ​​of early March 2020.

The official exchange rate of the Central Bank as of April 30 is set at 71.02 rubles per dollar and 74.56 rubles per euro.

Planned calculation

The decision taken by the Central Bank to lower the key rate was expected by market participants, Natalya Milchakova, a leading analyst at Freedom Finance Investment Company, said in an interview with RT.

According to her, in its actions, the regulator relied on a noticeable strengthening of the ruble throughout April and persistently high oil prices, which ensures high revenues for the Russian budget.

“Reducing the key rate is good news for borrowers, especially mortgage ones.

By the end of March, the rates on commercial mortgage loans in the largest banks soared to 23-24% per annum, but already in the second half of April they fell to 13-15% and the rate still has room for reduction.

Interest on deposits will also decrease to 8-9% per annum,” the analyst emphasized.

For businesses and enterprises, the decision of the Central Bank serves as a signal that loans will become more affordable, Sergey Suverov, investment strategist at Arikacapital, explained in a commentary to RT.

“A smooth rate cut has a positive effect on the revival of the lending market, which is currently experiencing difficulties due to the high rate.

Also, a decrease in the indicator stimulates business activity in the country and softens the depth of the recession, which, unfortunately, is possible this year,” the expert noted.

Analysts expect further easing of the Central Bank's monetary policy in the near future.

According to Natalia Milchakova's forecasts, the key rate may be reduced to 13% at the June meeting if inflation continues to slow down.

In turn, Sergey Suverov does not exclude that by the end of 2022 the indicator may consolidate at the level of 12%, and in the future, return to the corridor of 8-10% per annum.

In new conditions

According to the Central Bank, 2022 will be a period of structural transformation for the Russian economy.

Thus, restrictions in the field of trade, disruption of supply chains and a shortage of imported components will increasingly affect the work of individual industries.

Against this background, enterprises will need some time to adapt to new conditions.

According to the forecast of the regulator, by the end of the year, the country's GDP will decrease by 8-10%.

However, in 2023 the economy will move to gradual growth, due to which the indicator may return to the level of 2.5-3.5% already in 2024.

“The gradual exhaustion of supply-demand shocks, monetary and budgetary policies, as well as the government’s structural measures, will contribute to the resumption of economic growth from the beginning of next year,” Central Bank Chairman Elvira Nabiullina said during a press conference.

Despite the fact that the pace of price growth has stabilized over the past two weeks, inflationary risks remain significant, the head of the regulator added.

According to the Central Bank, the cost of consumer goods and services in 2022 will increase by 18-23%.

But this calculation includes the dynamics of a sharp increase in prices, which was observed at the end of February and in March, the head of the Central Bank emphasized.

“And future inflation – annual inflation over the next 12 months (as of April 2023) – will be much lower.

Within the framework of the basic forecast, it will be in the range of 10-12%.

The main price adjustment to the changed conditions will take place this year, to a lesser extent next year.

As a result, annual inflation will drop to 5-7% next year, and in 2024 it will return to the target (4% - 

),” Nabiullina stressed.