FX.co ★ Russia Cuts Interest Rate by 100bps

The Bank of Russia recently reduced its key interest rate by 100 basis points to reach 20.00% as of June 6. This decision was influenced by a continued decrease in inflationary pressures, including core inflation metrics. As of June 2, inflation had decelerated to 9.8% year-on-year, with underlying indicators fluctuating between 5.5% and 7.5%. The observed slowdown in consumer price growth, particularly for non-food items, is attributable to stringent monetary policy measures and the strengthening of the ruble. Nevertheless, inflation rates for food and services remain elevated, and inflation expectations—especially within households—are still quite high. Although the labor market remains constrained, early signs suggest that labor shortages are beginning to ease, and wage growth is moderating. Credit activity continues to be weak, with households maintaining a tendency to save. The Bank has cautioned that inflation risks currently exceed disinflationary trends and underscored the potential impact of fiscal adjustments or external shocks. It indicated that stringent monetary conditions would be sustained for an extended duration to achieve the inflation target of 4% by the year 2026.