By Paul Hannon
Russia’s central bank cut its key interest rate for a third time since early April as it sought to steady a strengthening ruble and support a faltering economy.
The Bank of Russia Thursday lowered its key interest rate to 11% from 14%. Following two rate cuts in April, that largely reverses a doubling of the key rate in the immediate aftermath of Russia’s invasion of Ukraine and the Western sanctions that it provoked.
The initial hike to 20% from 9.5% in late February was intended to support a rapidly weakening ruble (XTUP:USDRUB) and limit a surge in inflation as imports became more expensive. But the ruble has since regained lost ground and made some gains as Russia’s foreign currency revenues from exports of oil and gas have surged thanks to higher prices.
“Inflationary pressure eases on the back of the ruble exchange rate dynamics as well as the noticeable decline in inflation expectations of households and businesses,” the central bank said in a statement.
But while the currency and the country’s financial system have stabilized, the outlook for the economy is gloomy, with Western sanctions limiting the country’s ability to import needed goods, services, parts and equipment. The United Nations last week said it expects Russia’s economy to contract by 10.6% this year.
“External conditions for the Russian economy are still challenging, considerably constraining economic activity,” the Bank of Russia said.
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