The Bank of Russia has just announced a cut in key interest rates to 12.5% per annum, with the new rate levels to become effective from May 5, 2015. The current rates of 14% have been in place since March 16th 2015.
In its official statement on the decision, the central bank said the move reflected lower inflation risks and persistent risks of considerable economy cooling.
“Amid ruble appreciation and significant contraction in consumer demand in February-April 2015, monthly consumer price growth declines and annual inflation tends to stabilise. According to the Bank of Russia forecast, consumer price growth will slow down faster than expected. Annual inflation will fall to less than 8% in a year (April 2016 on April 2015) and to the target of 4% in 2017. As inflation risks abate further, the Bank of Russia will be ready to continue cutting the key rate.”
The decision was widely expected, given the strengthening of the Russian currency against the US dollar and the euro over the past couple of months. The momentum of that strengthening was somewhat lost this month, as the Bank of Russia made steps to tackle the influence carry trade (the so-called, “speculative element”) has on the strength of the national currency. On three separate occasions within approximately a month (from March 27, 2015 to April 20, 2015) the bank hiked the minimum interest rates at auctions to provide foreign currency, a step set to dissuade carry traders.
The movements of the Russian ruble are getting harder to predict, as the currency’s exchange rate appears to be less dependent on traditional indicators like the price of crude oil.
The Bank of Russia cut key interest rates on January 30th and March 13th this year. To view the official press release by the central bank on its latest move, click here.