With the interest rate cut, the bank also hopes to support the Russian economy hit by Western sanctions.
Ruble appreciation
The central bank was supposed to hold an interest rate meeting in about two weeks, but announced an emergency meeting on Wednesday. The interest rate in Russia fell from 14 to 11 percent. The bank also said that the door is open to further cuts.
In explanatory notes, policymakers made little mention of the ruble. They did report that the appreciation of the currency has contributed to a slowdown in inflation.
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At the end of February, interest rates in Russia were more than doubled, to 20 percent, to counteract the fall in the ruble and the high inflation in the country. The lose rubles then as much as 40 percent of its value due to Western sanctions against Russia after the invasion of Ukraine on February 24.
High oil and gas prices
The Russian currency has since appreciated significantly again, reaching its highest level since 2018 against the dollar. This is mainly due to the restrictions Russia has placed on the outflow of capital from the country and the higher prices for oil and gas.
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Because Russia’s oil and gas exports are largely exempt from sanctions, billions of dollars and euros flow into the country every week.
‘Survived sanctions’
Due to declining Russian imports and restrictions on buying foreign products and sending money abroad, demand for hard currencies like the dollar has virtually dried up in Russia, causing the ruble to appreciate against the US currency. .
President Vladimir Putin has also cited the ruble’s rebound as a sign that the country has survived unprecedented Western sanctions.
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Support economy
The central bank also wants to give the economy, which is heading for a sharp contraction due to the sanctions, a boost by lowering borrowing costs.
“External conditions for the Russian economy are still challenging, significantly limiting economic activity,” the policymakers said. The risks to the stability of the country’s financial system have decreased somewhat, according to the bank.
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