Up to 9.5% per annum: The Bank of Russia lowered the key rate for the fourth time in a row

On Friday, June 10, the Bank of Russia lowered its key rate by 1.5 percentage points, from 11% to 9.5% per annum.

This decision was made by the Board of Directors of the Central Bank following the results of the first summer meeting in 2022.

As noted in the Central Bank, the external conditions for the Russian economy are still difficult.

However, inflation in Russia is decelerating faster than expected, and economic activity is declining on a smaller scale than previously forecast.

“Latest data points to low current price growth rates in May and early June.

This was facilitated by the dynamics of the ruble exchange rate and the exhaustion of the effects of rush consumer demand in the face of a noticeable decrease in inflationary expectations of the population and business,” the Central Bank said in a statement.

According to the regulator, annual inflation in Russia has already dropped to 17%.

At the same time, according to experts of the Central Bank, according to the results of the current year, its value will be 14-17%.

“Important factors for further inflation dynamics will be the efficiency of import substitution processes, as well as the scale and speed of recovery in imports of finished goods, raw materials and components.

According to the forecast of the Bank of Russia, taking into account the ongoing monetary policy, annual inflation will decrease to 5-7% in 2023 and return to 4% in 2024,” the Central Bank added.

The Central Bank of Russia cuts its key rate for the fourth time in a row.

Such actions of the regulator should spur lending and thereby revive consumer activity in Russia.

This was announced at the end of May by the head of the Ministry of Economic Development Maxim Reshetnikov.

According to the minister, the so-called crisis of demand is observed in the country.

Businesses and the public do not spend enough money in the economy, and since the beginning of 2022, the level of spending in real terms has decreased by 20%.

In turn, the easing of the monetary policy of the Central Bank is intended to correct the situation, Reshetnikov explained.

It is expected that Russian banks will react to the decrease in the key rate and begin to reduce interest on loans and deposits.

As a result, bank deposits will become less profitable, and consumer loans will be cheaper.

“We expect that consumer lending will slowly return.

Of course, now the deposits that were in banks at these high rates are running out, and banks will go down.

People will have a choice: either to extend deposits at lower rates, or, perhaps, to take some part of the funds for consumption,” the head of the Ministry of Economic Development explained.

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Declining course

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, the United States, the European Union and a number of other countries have continued to introduce ever new economic restrictions against Russia.

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Initially, the restrictions caused an emotional reaction in 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.

In March, annual inflation in Russia accelerated from 9.2% to 16.7%, and in April reached 17.8%, the highest level since 2002.

To stabilize the situation, the government and the Central Bank approved a whole range of initiatives.

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

The authorities also obliged exporters to sell 80% of their foreign exchange earnings, banned the export of certain goods and approved financial support measures for citizens and businesses.

Already in the second half of spring, the situation in the economy began to gradually stabilize: the ruble managed to double in price compared to March highs, and the rate of price growth slowed down.

Against this background, since April, the Central Bank began to remove the restrictions imposed and gradually reduce the key rate: first to 17%, then to 14%, and later to 11% per annum.

The next meeting of the Board of Directors of the Central Bank is scheduled for July 22.

As noted in the Central Bank, the regulator will assess the feasibility of reducing the key rate, depending on the dynamics of inflation.

At the same time, according to experts, the regulator may again lower the rate in the near future.

“The Bank of Russia may further reduce the rate to 7.5-8% per annum.

If in the second half of the year there is a new round of inflation growth, then the rate, on the contrary, may be raised again, ”Artyom Deev, head of the AMarkets analytical department, suggested in an interview with RT.

No sudden movements

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 strengthening during trading on the Moscow Exchange.

Thus, the dollar exchange rate decreased by 2.5% - to 57.9 rubles, and the euro exchange rate - by 3.6%, to 61 rubles (then they fell to 56.72 and 59.80 rubles, respectively).

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Usually, the rate cut by the Central Bank puts pressure on the Russian currency in the long term.

Due to the actions of the regulator, the yield of Russian debt securities is decreasing and investor interest in the ruble is falling as part of carry trade operations.

Such a financial strategy involves purchasing the currency of a state that has low interest rates, and then investing this money in the currency of countries with high interest rates.

However, taking into account the still existing restrictions on the movement of capital, the impact of the key rate of the Central Bank on the ruble remains restrained.

Vladimir Bragin, director for the analysis of financial markets and macroeconomics of Alfa Capital Management Company, shared this opinion with RT.

“The Central Bank rate has almost no effect on the exchange rate, since the carry trade mechanism does not work.

At the same time, speculators may habitually react negatively to its decline, but now this will not lead to a reversal of the trend towards strengthening the national currency,” the expert explained.

According to him, the ruble exchange rate today is largely influenced by the imbalance of supply and demand for foreign currency in Russia.

Thus, against the backdrop of restrictions by the Central Bank and a fall in imports, the interest of citizens and businesses in buying dollars and euros has decreased, while foreign exchange earnings from the sale of Russian goods abroad continue to flow into the country in significant volumes.

At the same time, a too strong ruble is unprofitable for the Russian budget and exporters, Artyom Deev believes.

Against this background, as the expert believes, in the near future the authorities will continue to gradually ease restrictions on the financial market and thereby restrain further appreciation of the national currency.

“In the near future, rates may return to the levels of 60-62 rubles per dollar and 64-66 rubles per euro.

During the month, the indicators are likely to continue to grow little by little, as a too strong ruble reduces the income of exporting companies and the budget, calculated from the rate of 72 rubles per dollar, ”concluded Deev.