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Russia Surprises With 50bp Rate Cut

The Russian central bank cut interest rates by 50bp today to a level of 9.25%. The main reason for the action was concern over the appreciation of the Russian currency, the ruble, that could hurt the fledgling recovery from the economic downturn caused by Western sanctions and the collapse of the price of crude oil on international markets.

“I think this is a very rational step: this is an overdue decision, 0.5 pp is not much and not a little, if inflation stays and the balance of payments is more or less stable, if there are no sharp fluctuations in oil prices, this rate may still go down by the end of the year – to 8.5%, said former Finance Minister Alexei Kudrin, now head of the Center for Strategic Research, reported Russian state news agency TASS.

Inflation is also under control in Russia and gives the central bank further room to cut rates in the future. Kudrin thinks rates could reach 8.5% by the end of the calendar year.

Continued military spending increases has put pressure on social spending in the Russian Federation during the recession. The reduction in rates will give a boost to the economy and take a little bit of the pressure off Russian citizens in economic affairs.

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