Russia’s central bank keeps rate unchanged
Bank points out a serious deterioration in economic situation
MOSCOW – Russia’s central bank on Friday opted to keep the main interest rate at 11 per cent after lowering its rate five times this year, citing a serious deterioration in the economic situation.
The bank said that in a statement it made the widely expected decision “due to the higher inflation risks amid persistent risks of considerable economy cooling.” The bank also gave a gloomier growth forecast for this year, predicting a contraction of between 3.9 per cent and 4.4 per cent in 2015.
It had previously predicted that GDP would contract by 3.2 per cent. Its latest forecast is much more pessimistic than the government’s estimate of 3.3 per cent contraction. The decision to keep the interest rate at the same level came after “August saw a serious deterioration in foreign economic conditions,” the central bank said. “Inflation and inflation expectations were showing a clear upward trend, impacted by the exchange rate dynamics.”
The decision was expected by most economists since the central bank currently has little room for manoeuvre, wanting to lower the rate to help the economy recover but needing to protect the ruble. In December last year, the bank hiked interest rates to 17 per cent in a bid to regain control as the Russian currency plunged due to falling oil prices and Western sanctions imposed over Russia’s actions in Ukraine.
Russia has subsequently cut its interest rate five times since January, most recently to 11 per cent on July 31. This level remains very difficult for businesses and households, preventing economic recovery. As oil prices plunged this summer, the ruble fell 20 per cent against the dollar, reaching its lowest level this year in August and pushing consumer prices up.