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Russia’s central bank slashes interest rates to pre-invasion levels as inflation appears to peak

Topline

On Friday, the Russian Central Bank revised its interest rates to 9.5%, as in February before Russia invaded Ukraine, a sign that inflation in Russia may have peaked after hitting a peak of two decades after the country was struck. with a host of Western sanctions.

Highlights

The central bank cut interest rates by 150 basis points on Friday, from 11% previously, in the latest round of cuts since the key rate was raised to 20% on February 28.

In a press release, the Russian central bank acknowledged that the external environment for the country’s economy remains “challenging and significantly restricts economic activity”.

Despite this, the regulator said inflation was slowing faster and the country’s economic decline was less than expected in April.

The central bank noted that annual inflation as of June 3 stood at 17%, down from a two-decade high of 17.8% in April.

Inflation is expected to hover between 14-17% by the end of 2022, then ease back to 5-7% in 2023 before returning to 4% a year later, the regulator added.

Large number

57.03. This is the exchange rate of the ruble against the dollar on Friday morning. The Russian currency hit an all-time low of 150 against the dollar in early March but has since managed to recover, helped by the Kremlin’s decision to severely restrict money transfers abroad and other measures.

Key Context

While economists remain skeptical of the ruble’s resilience, global companies that have been forced out of Russia due to sanctions have suffered massive losses. According to a the wall street journal report, the roughly 1,000 Western companies that left Russia collectively face more than $59 billion in losses. Among the hardest hit are oil companies like BP and ExxonMobil, which have posted losses of $25.5 billion and $3.4 billion so far respectively. Aircraft lessors have also been hit by departures, with Russia refusing to return jetliners leased to the country’s airlines by companies like Ireland’s AerCap Holdings, which wrote off about $2.7 billion.

Further reading

Russia cuts policy rate to pre-war level: CNBC

Russia’s trade losses exceed $59 billion as sanctions hit (Wall Street Journal)

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Post expires at 3:58am on Wednesday June 22nd, 2022