Russian Central Bank Lowers Interest Rates Again

Russia’s central bank lowered its key interest rate today, the 13th time in a year. But, it seems that this will be the final cut in Russia’s current easing cycle. However, economists believe that the central bank’s ability to control the inflation arising due to low interest rate policy might be hampered from political pressure.

According to the Wall Street Journal, Russia's central bank has faced pressure to keep rates low in order to boost lending and containing the ruble appreciation. The central bank has cut the key refinancing rate by further 0.25 percentage points to a record low of 8%, effective April 30. Other key rates will fall as well, the central bank said in a statement. The bank said in a statement, “On the whole, the economic recovery process remains unsteady,” despite some key economic indicators showing improvement. An uptick in March bank lending was “insignificant,” it said.

Officials were unsure about any further rate cut as they are expecting that inflationary pressures in the second-half will bring the country's credit easing cycle to an end, with a small possibility of a rate increase by the end of the year. Referring to interest rate policy, Vladimir Tikhomirov, chief economist at Uralsib, said, “The central bank may now pause to assess how inflation will develop in the next few months.” He further added that, “this may be the last rate cut this year.”

Renaissance Capital said in a research note that, government’s spending on social programs, which were launched last year will push-up the inflation. Spending on these programs may come at a much faster pace in the second-half of the year, the research note observed.