In late February, shortly after Russian forces invaded Ukraine, the Central
Bank of Russia more than doubled the countrys key interest rate from 9.5% to
20% in an effort to prop up its plunging currency.
In its statement Friday, the CBR said the sharp increase in its key rate had
“helped sustain financial stability.”
The Central Bank of Russia on Friday held its monetary policy steady and
maintained its key interest rate at 20%, but warned of considerable uncertainty as
the countrys economy undergoes a “large-scale structural transformation.”
In late February, shortly after Russian forces invaded Ukraine, the CBR more than
doubled the countrys key interest rate from 9.5% to 20% in an effort to prop up its
plunging currency and mitigate the impact of tough international sanctions.
In its statement Friday, the CBR said the sharp increase in its key rate had helped
sustain financial stability.
The Russian economy is entering the phase of a large-scale structural
transformation, which will be accompanied by a temporary but inevitable period of
increased inflation, mainly related to adjustments of relative prices across a wide
range of goods and services, it said.
The Bank of Russias monetary policy is set to enable a gradual adaptation of the
economy to new conditions and a return of annual inflation to 4% in 2024.
The ruble sank to record lows against the dollar on the back of a barrage of new
sanctions and penalties imposed on Moscow by the U.S. and European allies, before
Earlier this week, Russia managed to stave off a historic debt default by completing
some of its sovereign bond payments in dollars, Reuters reported. The Russian
Finance Ministry said Friday that it had met its obligations to pay coupons on dollardenominated eurobonds in full.
The CBRs large quantities of foreign currency reserves were targeted by Western
sanctions that aimed to render them almost inaccessible, preventing policymakers
from mitigating the depreciation in domestic assets.
While the decision was expected, the central banks statement gave some insight into
how it views the economic outlook for Russia at present.
William Jackson, chief emerging markets economist at Capital Economics, said there
were three key takeaways, the first of which was that the central bank seems to think
it has done enough with last months emergency hike to stabilize the financial system
and prevent a run on Russian banks.
Second, the CBR sees sanctions and a shift by the Russian government towards
autarky and isolationism as something that is here for the long haul, Jackson said,
noting that the statement mentioned the “large-scale structural transformation” on
several occasions.
And third, despite that, policymakers at the CBR are trying to maintain a semblance
of macroeconomic orthodoxy. The over-riding focus of the statement was on the
balance of inflation risks and that monetary policy would remain tight to prevent
second-round effects from the current inflation spike from taking hold.
This may indicate that policymakers aim to roll back the current capital controls,
revert to a floating ruble and return the focus of monetary policy to inflationtargeting eventually, Jackson suggested.
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