Russia’s central bank today lowered interest rates to 18% from 20% earlier, its steepest cut in more than three years as policymakers race to avert a recession.
Russia’s economy has been marked by volatility since it sent troops into Ukraine in February 2022.
The central bank jacked interest rates to an eye-watering high of 21% last October to combat inflation and kept them at that level until last month, when it eased them to 20%.
But sky-high lending rates have hit businesses hard, with some of the country’s top corporate leaders putting pressure on the central bank to relax rates.
“Current inflationary pressures, including underlying ones, are declining faster than previously forecast. Domestic demand growth is slowing,” the bank said in a press release.
Annual inflation was just over 9% in June, more than double the central bank’s target of 4% but lower than the peak of over 10% reached in March, according to official data.
Russia defied expectations that sanctions over the Ukraine offensive would push it into a deep and lengthy recession, as spending on weapons manufacturing, generous payments to its hundreds of thousands of soldiers and generous increases in social welfare pushed up growth.
Russia’s GDP grew in 2023 and 2024, but officials worry its economic model is no longer sufficient to maintain growth.
In a statement on its website, the central bank kept its GDP forecasts unchanged at between 1-2% growth this year and 0.5-1.5% growth in 2026.
It predicted borrowing costs would stay elevated in the 18-19% range this year as it saw a return to its inflation target of 4% annually only in 2026.
But Evgeny Kogan, a Russian business analyst and investor, said the bank could slash rates to as low as 15% by the end of the year in the face of a recession.
“The slowdown in business and consumer activity will continue, economic growth will basically come to a halt, and prices will rise slowly,” he said.
