Up to 8% per annum: the Bank of Russia lowered the key rate for the fifth time in a row

On Friday, July 22, the Board of Directors of the Bank of Russia decided to cut the key rate by 1.5 percentage points at once, from 9.5% to 8% per annum.

The value was the lowest since December 2021.

As explained in the Central Bank, the current growth rates of consumer prices in the country remain low and contribute to a further slowdown in annual inflation.

Thus, according to the regulator, in June the corresponding figure fell from 17.1% to 15.9%, and by mid-July reached 15.5%. 

“The decline in headline inflation was largely due to the ongoing correction in prices for goods and services after their sharp rise in March.

This was facilitated by the dynamics of the ruble exchange rate and the generally restrained dynamics of consumer demand,” the Central Bank said in a press release.

According to the assessment of the Bank of Russia, the external conditions for the country are still difficult and significantly limit economic activity.

However, the decline in business activity is slower than previously thought.

Under these conditions, the Central Bank significantly improved its macroeconomic forecast.

Back in April, the Central Bank expected Russia's GDP to fall by 8-10% in 2022 and inflation to accelerate to 18-23%.

However, now the regulator estimates the expected economic recession at the end of the current year at only 4-6%, and consumer price growth at 12-15%.

The improvement in the forecast is largely due to the fact that the first reaction to Western sanctions has already passed and the economy is adapting to new realities.

Sergey Suverov, an investment strategist at Arikapital Management Company, shared this opinion in an interview with RT.

“In addition, commodity prices remain high, and Russian suppliers have managed to redirect exports of goods from west to east.

Although our oil is selling at a discount, the trade balance remains positive.

At the same time, the ruble has seriously strengthened, which contributed to lower inflation and played into the hands of companies that are focused on the domestic market and demand,” Suverov added.

• RIA News

• © Vladimir Trefilov

It should be noted that the Central Bank of Russia has been reducing its key rate for the fifth time in a row.

As experts explain, the regulator's actions should lead to cheaper loans, a revival of business and consumer activity in the country, as well as an increase in the circulation of money in the economy.

“Reducing the key rate is intended to stimulate economic growth, since with it, banks will immediately lower interest rates on loans and deposits by the same amount.

This means that loans and their maintenance will be cheaper for businesses and citizens, ”Vladimir Chernov, analyst at Freedom Finance IC, explained to RT.

Recall that at the end of February, the Central Bank sharply raised its key rate to a record 20% per annum.

Such a decision was necessary to stabilize the situation on the financial market and contain the sharply accelerated inflation in the face of sanctions.

As a result of the actions of the Central Bank, already in March, market mortgage rates in Russia rose to 23-24%, and the average interest on deposits was above 20.5% per annum.

However, since April, the regulator began to gradually lower the key rate as inflation slows down and panic in the financial sector decreases.

As a result, to date, the average market mortgage rates in the country have fallen to 10.69-10.81%, and the maximum interest on deposits in the ten largest banks - up to 7.65% per annum, as evidenced by the materials of the Central Bank and the company "DOM. RF".

According to Sergei Suverov, these figures will continue to decline in the future.

“Loan and deposit rates respond synchronously to changes in the key rate.

But deposits are likely to drop at a faster rate than loans.

Banks are still trying to maximize profits.

At the same time, too sharp a decrease in deposit rates can lead to an outflow of depositors' funds, so banks will approach the issue with caution and look for a balance, ”Suverov suggested.

• RIA News

• © Natalia Seliverstova

The next meeting of the Board of Directors of the Central Bank is scheduled for September 16.

According to a press release from the regulator, the Central Bank plans to continue to monitor the dynamics of inflation, as well as the restructuring of the economy, and, depending on this, evaluate the feasibility of lowering the rate.

As Vasily Karpunin, head of the information and analytical content department at BCS World of Investments, suggested in an interview with RT, by the end of 2022 the Central Bank may lower the key rate to 7.5-8%.

According to the specialist, this can be done in the interests of supporting the Russian economy.

currency signal

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 decreased by 2.4%, to 58 rubles, and the euro exchange rate - by 1.6%, to 58.17 rubles.

According to Sergey Suverov, a decrease in the key rate usually negatively affects the dynamics of the national currency in the long term.

The easing of monetary policy makes investments in ruble assets less attractive and profitable for investors, so players are beginning to shift money to other emerging market currencies.

“I think today's weakening of the ruble is just due to a significant reduction in the rate.

However, it is worth noting that the ruble today is influenced by a whole range of factors, and the change in the key rate is just one of them,” Suverov stressed.

For example, the ruble continues to be significantly supported by the imbalance of supply and demand in the foreign exchange market.

Dollars and euros received from exports continue to flow into Russia in significant volumes, while the interest of companies, banks and the public in foreign banknotes has decreased.

At the same time, a too strong ruble is unprofitable for Russian exporters and the budget, so the authorities are now discussing the possibility of introducing measures to control the exchange rate.

This was previously stated by the head of the Russian Ministry of Finance Anton Siluanov.

In particular, the minister suggested returning to the practice of foreign exchange interventions, when the state sold rubles for dollars and euros, thereby putting pressure on the national currency.

“The Ministry of Finance used to put excess profits from oil and gas into foreign currency, into the National Welfare Fund, and so on, within the framework of the budget rule.

Now foreign currency is toxic, but we are ready to do it (invest money. -

) in order to influence the exchange rate, in the currency of friendly countries.

And through the currency of friendly countries, through cross-rates against the dollar and the euro, it will be possible to regulate the value of the dollar and the euro against the ruble through such a ratio, ”Siluanov noted.

On behalf of Russian President Vladimir Putin, the government will have to prepare proposals for adjusting the budget rule by July 25.

However, experts do not yet expect serious changes in the situation on the country's foreign exchange market until September.

As Andrey Loboda, an economist and director of external relations at BitRiver, suggested in an interview with RT, the dollar and euro rates on the Moscow Exchange will continue to fluctuate in the range of 57-62 rubles until the end of summer.