The Bank of Russia decided to lower the key rate by 150 basis points – from 9.5% to 8% per annum. This is stated in the message on the website of the regulator. The Central Bank explains its decision by the slowdown in inflationary expectations among the population, as well as the slowdown in inflation.
“Current consumer price growth rates remain low, contributing to a further slowdown in annual inflation,” the Bank of Russia said in a statement.
The regulator notes a decline in prices after peak values in the spring and expects this trend to continue. The exchange rate of the ruble, which continues to be strong against the backdrop of a sharp drop in imports, played a significant role in this matter. The Central Bank links the decline in inflation, among other things, with a decrease in consumer activity. At the same time, the regulator's assessment of economic prospects is still vague and restrained in assessing the prospects for economic growth.
“The external environment for the Russian economy remains challenging and significantly limits economic activity. At the same time, operational indicators indicate that the decline in business activity is slower than the Bank of Russia expected in June.
The regulator does not expect the growth of the Russian economy until 2024. The basic forecast for 2022 is a fall of 4-6%, for 2023 – GDP will decrease in the region of 1-4%. And only in 2024 will Russian GDP resume growth, which the Central Bank estimates in the range of 1.5-2.5%. The inflation forecast for 2022 is 12-15%, the dynamics of price growth will depend on the ruble exchange rate and the recovery of imports and the success of import substitution. In 2023, the Central Bank expects inflation at the level of 5–7%, and the regulator expects a return to the target 4% per annum only in 2024.
Most analysts expected the regulator to cut the rate by 50 basis points to 9% per annum. Some analysts thought there was room for more aggressive cuts, 75 bps and 100 bps were cited. Experts also associated a possible more aggressive rate cut with deflation and a reduction in inflationary expectations among the population. The next meeting of the Bank of Russia will be held on September 16.