Russia’s Central Bank cut interest rates again on Friday, but the government immediately grumbled that more will be needed to stop the economy stalling.
The CBR cut its key interest rate to 17 percent from 18 percent, pointing to signs that the inflationary pressure created by the war in Ukraine is easing. However, it warned that it feels things will get worse, not better, mainly due to the widening budget deficit.
Once again, the CBR pointed out that the government has not yet made the necessary adjustments to prevent the budget from being affected by inflation, stating it will update its assessment of fiscal policy effects on inflation once the amendments are finally submitted to the Duma.
“At our meeting in October, a lot will depend on the parameters of fiscal policy that will be ultimately proposed,” Governor Elvira Nabiullina told a press conference.
In its statement, the CBR also noted a recent sharp rise in gasoline prices across Russia, caused by a succession of drone attacks by Ukraine on the country’s oil refineries. However, it expects the current price spike to pass.
Before Friday’s meeting, some observers expected the CBR to cut by two full points, but Nabiullina said that hadn’t even been considered. She said the only proposals presented were for a one-point cut or no change.
The decision prompted grumblings from the Ministry of Economic Development, whose head, Maxim Reshetnikov, warned at the start of the week that the economy was “cooling faster than expected” due to the CBR’s tight monetary policy.
“Current inflation dynamics leave potential for continued easing of monetary policy,” Lev Denisov, the ministry’s head of forecasting, said in a statement. “This is extremely important for [the economy] to reach a trajectory of sustainable growth and to achieve the goals set by the president.”
Nabiullina noted during her press conference that, while the headline inflation numbers have come down well off last year’s peak, there are still plenty of signs that the economy is close to overheating. Corporate borrowing immediately increased after the CBR’s first interest rate cut two months ago, consumer credit followed suit in August and wages are still rising faster than productivity throughout the economy, she said.
The CBR targets an inflation rate of around 4 percent. Official data showed it slowing to 8.1 percent in August from 8.8 percent in July. However, many analysts believe the actual rate of inflation to be significantly higher, owing to the difficulty of compiling such statistics in a country that has undergone substantial structural changes since the start of the Ukraine war.
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