Russia cuts key interest rate amid coronavirus lockdown & plunging oil prices

The Bank of Russia slashed its interest rate by 50 basis points on Friday, for the first time since October 2019, to 5.5 percent. The regulator said that further reductions may follow soon.

“Since the March Board of Directors meeting, the situation has changed dramatically. Significant restrictive measures have been introduced to combat the coronavirus pandemic, both in Russia and across the world, which negatively influences economic activity,” the central bank said in a statement.

The Bank of Russia added that it has reviewed the baseline forecast scenario and is shifting to an accommodative monetary policy. According to the bank forecast, given the monetary policy stance, annual inflation will reach 3.8-4.8 percent in 2020 and will stabilize around four percent later on. The country’s GDP (gross domestic product) is forecast to decrease by between four and six percent in 2020.

“If the situation develops in line with the baseline forecast, the Bank of Russia holds open the prospect of a further key-rate reduction at its upcoming meetings. In its key-rate decision-making, the Bank of Russia will take into account actual and expected inflation dynamics relative to the target and economic developments over the forecast horizon, as well as risks posed by domestic and external conditions and the reaction of financial markets.”

The Russian economy is, beyond this, expected to follow a recovery path, with growth predicted to total 2.8-4.8 percent in 2021 and 1.5-3.5 percent in 2022. The bank’s baseline scenario assumes an average price of Urals oil blend of $27 per barrel in 2020, with its subsequent rise to $35 and $45 per barrel in 2021 and 2022 respectively.

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