Russia cuts key interest rate to 14%, says inflation could hit 23% this year

The Central Bank of Russia has cut its key interest rate to 14% from 17% as it looks to mitigate the impact of international economic sanctions.

In the aftermath of Russia’s invasion of Ukraine and the ensuing unprecedented Western sanctions, the central bank is juggling a sharply shrinking economy and skyrocketing inflation. Economists expect a double-digit contraction for the economy, and inflation in excess of 20% in 2022.

Russian inflation reached 16.7% in March and the central bank said on Friday that it expects annual inflation of between 18% and 23% this year.

The central bank implemented an emergency hike of the key rate from 9.5% to 20% in February, days after the invasion of Ukraine, in a bid to support its plunging ruble currency.

However, with the ruble now returning to pre-war levels, policymakers are turning their attention to recalibrating the economy in an effort to absorb the impact of punitive sanctions from international powers.

“The external environment for the Russian economy remains challenging and significantly constrains economic activity. With price and financial stability risks no longer on the rise, conditions have allowed for the key rate reduction,” the central bank said in a statement Friday.

“Recent weekly data indicate a slowdown in current price growth rates on the back of a strengthening of the ruble and a cooling of consumer activity.”

The bank said its inflation outlook is set to be impacted by the future of its imports and exports, as it looks to navigate the stinging sanctions.

It added that it will “take into the account the need for a structural transformation of the economy and will ensure a return of inflation to target in 2024.”