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Russia Cuts Rates As Economy Feared Weaker Than Expected

Russia Cuts Rates As Economy Feared Weaker Than Expected

The Russian central bank slashed interest rates again last week to stimulate the economy as Moscow struggles to emerge from the long Chinese coronavirus pandemic lockdown; the Bank of Russia reduced what the central bank charges commercial banks by 1% to 4.5%.

Even though the elite oligarchy stifles innovation and economic development in the Russian Federation, fiscal and monetary policy has been quite conservative and responsible during the Putin reign. Russia has very little sovereign debt and large ‘rainy day’ funds.

This fiscal conservatism gives Moscow a wide range of policy options to try and engineer a shallower recession than what could be awaiting the Kremlin.

Amid the biggest shock to the economy in a generation, inflation has fallen to 3.1%, the Bank estimated — below its official 4% target — and is expected to stay low for at least the rest of the year, as the economic recovery will continue into 2022, wrote The Moscow Times.

A global slump in demand during months of lockdown measures triggered by the coronavirus epidemic led to “more profound than expected” disinflationary factors, the Bank said in a statement.

The Bank added that it would take interest rates even lower if growth does not accelerate faster than its current expectations. Governor Elvira Nabiullina has previously said the Russian economy is likely to contract by 4-6% in 2020. Some other independent forecasts predict a fall in GDP of up to 8%.

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