Central Bank of Russia Cuts Interest Rates by About 100 Basis Points

SadaNews - The Central Bank of Russia reduced interest rates today, Friday, by about 100 basis points to 17%, amid slowing inflation and increasing pressures from officials and the business sector to save the economy from falling into the clutches of recession.

This reduction is the second consecutive cut but at a smaller rate, and the third of its kind, coming in below analysts’ expectations, which had estimated a reduction of borrowing costs by about 200 basis points.

This decision comes at a time when authorities are striving to achieve a delicate balance between containing inflation and increasing signs of economic deterioration amid the ongoing war in Ukraine.

In June of last year, the Russian central bank cut interest rates for the first time since 2022, reducing the benchmark rate from 21% to 20%.

Economic Situation in Russia

Herman Gref, head of the largest bank in Russia "Sberbank", described the situation as "technical recession," urging the central bank to prevent the economy from sliding into full recession, a description that President Vladimir Putin rejected, affirming his support for the central bank's efforts to rein in inflation through raising interest rates to record levels.

Last Friday, Putin stated: "Some believe that the slowdown has already begun, but lending has not stopped." He continued, "The pace has slowed; I know the situation is not easy in some sectors," emphasizing that inflation must not undermine the economy.

Differences in Opinions Regarding the State of the Economy

Despite this, officials remain divided about the seriousness of the situation. The Minister of Economy Maxim Reshetnikov expressed similar concerns to analysts’ predictions that the slowdown is more severe than expected.

In contrast, the Bank of Russia believes that the economy is still operating above its capacity, albeit to a lesser degree than earlier in the year. The Russian economy recorded a growth rate of 4.1% last year and in 2023.