Russian Central Bank cuts interest rates

RUSSIA / FSU POLITICS - In Brief 24 Apr 2020 by Alex Teddy
On April 24 the Russian Central Bank (CBR) cut interest rates to a level not seen since 2012. This is just as we predicted. CBR said the economy might diminish by 6% in 2020. The move was almost universally anticipated. The key rate was previously 6% and is now 5.5%. This is CBR's first response to COVID-19 and is arguably late. The Governor of CBR said further cuts might follow. Analysts consider that probable.Oil prices are down 70% in 2020 which has severely impacted the Russian economy. As it is summer demand would be falling slightly anyway but the current situation is of course not due to seasonality. GDP is forecast to shrink by 4% to 6%. A fall in the middle of this range would reverse all the growth since 2015. CBR is being uncharacteristically candid. Its predictions are consonant with those of the IMF. There are economists who even foresee a 10% crash for Russian GDP. CBR said Russia would have a current account deficit for the first time since the 1990s. The value of the principal export - oil - will drop by over 10%.Government coronavirus support is worth 2% of GDP. This is well below what most advanced economies are offering. CBR voiced its disquiet with the sluggish pace of lending by banks when the government is backing soft loans to keep businesses afloat. CBR's key rate decision caused RUB to rally to 74.2 to the USD.

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