CBR cuts the key rate by 150 bps, more cuts expected

RUSSIA ECONOMICS - In Brief 10 Jun 2022 by Alexander Kudrin
The CBR cut the key rate by 150 bps to 9.5% amid rapid disinflation and an abnormally strong ruble. The latter factor also encouraged the government to cancel obligatory FX sales by exporters introduced after Russia announced its “special military operation” in Ukraine. The regulator now expects that inflation in 2022 is likely to stay between 14% to 17%, while GDP contraction won’t be as severe as was thought earlier, which is in line with the view we expressed a couple of days ago in a report from this series. Amid the highly non-linear and uneven performance of the key economic indicators, one cannot rule out that inflation y-o-y may fall below 14% by year-end. Hence further key rate cuts are almost guaranteed as any measure of the current inflation (be it annualized six or three-month moving average) will be in mid-to-low single-digit levels in 2H22. Cutting the key rate is essential to bring down abnormally high consumer lending rates, revive lending activity and support the economy. Evgeny Gavrilenkov Alexander Kudrin

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