The Board of Directors of the Bank of Russia at its July meeting reduced the key rate from 20 to 18 per cent – by 200 basis points at once.
This is the second rate cut in a row and comes against the backdrop of slowing economic growth, cooling demand and declining inflation.
In its statement, the Central Bank notes a reduction in the growth of labour shortages and a decrease in demand for labour, as well as a decline in wage growth. Economists have been recording a slowdown in the Russian economy since the beginning of the year after it overheated due to the growth of military production.
From October to April, the key rate held at its highest level since the early 2000s at 21 per cent. It was falling to 4.5 per cent in 2021, before a full-scale invasion of Ukraine.
The interest rate the Central Bank lends to Russian banks depends on the level of the rate. The more expensive it is for banks to borrow money, the more expensive their loans are for businesses and households. High interest reduces consumption and economic growth, but keeps inflation down.
In June, the Russian Central Bank announced that it had cut its key lending rate from 21% to 20%.