The Russian Central Bank cut interest rates by 25 basis points to 7%.
The Central Bank of Russia cut interest rates by 25 basis points to 7% (five and a half years low), in line with market expectations, for the third consecutive meeting. The central bank said further interest rate cuts could be made at future meetings. The dollar fell to 65.86 against the Russian rouble USD/RUB short-term.
The Central Bank of Russia expects CPI to be 4.0% – 4.5% in 2019, compared with 4.2% – 4.7% previously. GDP growth is expected to be between 0.8% and 1.3% in 2019, up from 1.0% to 1.5%. GDP growth is expected to be between 0.8% and 1.3% in 2019, up from 1.0% to 1.5%. Based on the expectations of the central bank and considering the monetary policy position, the annual inflation rate is expected to remain near 4%. In the interest rate decision, the central bank will consider real inflation and inflation expectations, as well as economic development.
Reportedly, the Central Bank of Russia did not mention neutral interest rates in its statement.
As global economic growth slows down, central banks around the world have been cutting interest rates to stimulate economic activity. Among developed economies, the European Central Bank and the Bank of Japan expressed their willingness to further relax monetary policy, while the Federal Reserve cut interest rates for the first time in 10 years in July. In emerging markets, central banks in the Philippines, Thailand and Indonesia have cut interest rates this year.
Russia’s Economic Challenge
Russia’s economy is facing double challenges: global uncertainties such as trade wars and sanctions from the United States.
Over the past five years, Russia has been working hard to deal with the economic sanctions imposed by the United States and its allies on Russia. Some of these sanctions include restrictions on Russian banks’access to international capital markets.
Andrei Costin, chairman of Moscow’s VTB Bank, said the sanctions had “dramatically changed our financing policy” and that his bank found it difficult to continue borrowing large amounts of dollars and euros.
“We learned how to raise money, which is helpful in times of crisis.” He said.