From May 27, the Bank of Russia will reduce the key rate by three percentage points at once - from 14 to 11% per annum.

This decision was made by the Board of Directors of the Central Bank following an unscheduled meeting on Thursday, May 26.

“The latest weekly data point to a significant slowdown in the current rate of price growth.

The weakening of inflationary pressure is facilitated by the dynamics of the ruble exchange rate, along with a noticeable decrease in inflationary expectations of the population and business,” the Central Bank said in a statement.

As noted in the Central Bank, inflation in Russia is declining faster than expected, and in annual terms has already fallen to 17.5%.

Moreover, according to Rosstat, during the week from May 14 to May 20, deflation was recorded in the country for the first time in nine months - consumer prices for goods and services fell by an average of 0.02%.

“The influx of funds for fixed-term ruble deposits continues, and lending activity remains low.

This limits pro-inflationary risks and necessitates easing monetary conditions,” the Bank of Russia explained.

According to the regulator, the external conditions for the Russian economy remain difficult, which significantly limits business and consumer activity in the country.

However, risks to financial stability have eased somewhat.

This, in turn, allows easing certain capital controls, the Central Bank added.

It is noteworthy that the Central Bank has been reducing its key rate for the third time in a row.

Thus, the regulator is trying to revive the Russian lending market and support economic activity in the country, said Sergey Suverov, investment strategist at Arikapital Management Company.

As the specialist recalled, traditionally Russian banks closely monitor changes in the key rate of the Central Bank and independently determine the level of long-term lending and deposit rates on the basis of decisions made by the regulator.

As a result of monetary policy easing, bank deposits will become less profitable, and consumer loans will be cheaper, the specialist emphasized.

“Loan rates at a high key rate were actually protective.

Moreover, many borrowers tried not to take loans at all.

Now interest on loans will change by the same amount by which the Central Bank lowered the rate today, that is, banks will make a symmetrical decision.

Deposits will also be characterized by a decrease in rates, but some banks may still make any profitable offers to customers, ”Suverov explained.

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Recall that on February 28, the Central Bank more than doubled its key rate - from 9.5% to a record 20% per annum.

This decision was taken by the Central Bank as one of the anti-crisis measures in the context of sanctions.

Since the end of winter, Western countries have imposed more and more economic restrictions on Russia in response to Moscow's special operation in Ukraine.

Restrictions, in particular, affected the banking industry, the energy sector, aviation and trade.

At the same time, almost half of the country's gold and foreign exchange reserves (worth $300 billion) were frozen, and many international companies announced their withdrawal from the Russian Federation.

Initially, the sanctions provoked an emotional reaction from the Russian financial market and ordinary citizens.

In March, the dollar and euro exchange rates for the first time rose above 121 and 132 rubles, respectively, and the Russians began to massively buy food and goods, which led to a rush in prices.

According to Rosstat, in March, annual inflation in Russia accelerated from 9.2% to 16.7%, and in April it reached 17.83%, the highest level in the last 20 years.

To support the economy, the government and the Central Bank approved a set of initiatives.

In addition to raising the key rate, the withdrawal of capital abroad was limited and a temporary procedure for the circulation of currency in the country was introduced.

At the same time, the authorities obliged exporters to sell 80% of their foreign exchange earnings, banned the export of certain goods abroad, approved measures to support businesses and citizens, and legalized parallel imports.

As a result of the initiatives taken, the situation in the economy gradually began to stabilize.

Against this background, already in April, the Central Bank lowered the key rate, first to 17%, and later to 14% per annum.

The next meeting of the Board of Directors of the Central Bank is scheduled for June 10.

At the same time, the regulator does not exclude the possibility of another rate cut.

“The Bank of Russia will make further decisions on the key rate, taking into account the actual and expected inflation dynamics relative to the target, the process of economic restructuring, as well as assessing the risks from internal and external conditions and the reaction of financial markets to them,” the Central Bank emphasized.

As Mikhail Shulgin, head of the global research department at Otkritie Investments, suggested in a conversation with RT, by the end of this year, the key rate of the Central Bank may drop to 10% per annum.

At the same time, BitRiver financial analyst Vladislav Antonov admits the return of the indicator to the pre-crisis level of 9.5% per annum.

Currency benchmark

At the time of the announcement of the results of the meeting of the Board of Directors of the Central Bank, the Russian currency was depreciating during trading on the Moscow Exchange.

Thus, the dollar exchange rate rose by 3%, to 61.15 rubles, and the euro exchange rate, by 4.6%, to 63.4 rubles.

Usually, a reduction in the interest rate of the Central Bank makes investing money in ruble assets less attractive to investors.

In particular, due to the actions of the regulator, the yield of federal loan bonds (OFZ) is decreasing.

As a result, the outflow of investments from the OFZ market is increasing, which has a negative impact on the dynamics of the ruble.

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However, in the context of limited capital movement, the impact of the key rate on the Russian currency is still restrained.

This opinion was shared with RT by the head of the information and analytical content department of BCS World of Investments Vasily Karpunin.

“Now cross-border flows are limited, there is no usual carry trade of foreigners who would shift their money from currencies with low rates to currencies with high ones.

Therefore, at the moment the impact on the ruble is restrained.

The exchange rate of the national currency now primarily depends on the situation with the trade balance,” Karpunin explained.

According to him, at the moment the supply of foreign currency in Russia exceeds the demand for it.

Due to external restrictions in trade, the import of foreign goods into the country has significantly decreased, while money from the sale of Russian goods abroad continues to flow in significant volumes.

Against this background, over the past two months, the Russian currency has been able to more than double in price against the US and European.

Even at the auction on May 25, the dollar and euro exchange rates for the first time in recent years fell to 55.8 and 57.1 rubles.

respectively.

However, such a strengthening of the national currency is unprofitable for the budget, so the Central Bank will take measures to weaken the ruble somewhat, analysts say.

“The Central Bank is already gradually lifting restrictive measures.

The requirement for the mandatory sale of foreign exchange earnings for exporters was lowered from 80% to 50%.

Along with this, logistics chains are gradually being restored.

This means that the demand for foreign currency from importers will increase,” Vladislav Antonov believes.

In his opinion, by the end of the year the dollar may return to the level of 85 rubles.

At the same time, according to Mikhail Shulgin, the indicator will be in the corridor of 70-80 rubles by the end of 2022.