Russia's Central Bank prepares to cut rate amid economic slowdown and war risks
Kyiv • UNN
The Russian regulator plans to cut the rate to 14.5% amid falling production. Risks of war in the Middle East and budget expenditures are holding back the pace of easing.
The Central Bank of Russia may continue to lower the key rate due to a noticeable slowdown in the economy, but budget uncertainty and the impact of the war in the Middle East are holding back more decisive steps. This is reported by Bloomberg, writes UNN.
Details
According to the forecasts of all nine economists surveyed by the agency, the Bank of Russia will lower the key rate to 14.5% at its meeting on Friday. This will be the fifth consecutive 50 basis point reduction.
The decision is being made against the backdrop of an economic downturn that is already casting doubt on the official growth forecast for the year.
Signs of economic slowdown
The tight monetary policy introduced to curb inflation amid the war against Ukraine continues to put pressure on economic activity. Production is declining, and businesses are spending profits mainly on servicing expensive loans, rather than on investments.
Putin recently demanded an explanation from the government regarding the slowdown and called for action.
Analysts note that economic weakness is becoming increasingly evident and may force the regulator to act faster.
Restraining factors
At the same time, the Central Bank is acting cautiously due to inflationary risks. Among the key factors are uncertainty about government spending and the consequences of the conflict between the US and Iran.
In particular, Russian budget expenditures in the first quarter increased by 17% year-on-year, which may complicate the fight against inflation.
Geopolitical tensions are also expected to affect the prices of both imported goods and Russian exports.
Inflation and further steps
According to the Ministry of Economy of the Russian Federation, inflation in April slowed to 5.77% from 5.9% in March, and inflation expectations decreased to 12.9%.
Despite this, the Central Bank is more concerned about price stability than about the decline in production, which it calls a temporary effect of adaptation to new conditions.
Analysts do not rule out that a more aggressive rate cut is possible as early as summer if the economic slowdown intensifies.
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