Russian Central Bank cuts benchmark interest rate to a record low of 4.5 per cent



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Russian Central Bank cuts benchmark interest rate to a record low of 4.5 per cent

As anticipated the Russian Central Bank had slashed its benchmark interest rate by 100 basis percentage point later last week, drawing in the lowest borrowing cost in the post-Soviet era in order to cushion up the Russ economy which analysts said was severely weakened due to a late-epidemic outbreak.

Aside from that, latest decision of the Russian Central Bank comes over the heels of an earlier hint from the head of the Central Bank of Russia, Elvira Nabiullina, who had stated several times earlier last month that the Central Bank policymakers would consider a more decisive approach to downsize the pandemic-hit nation’s interest rate by 100bps, while the Russ Central Bank decision to trim interest rate to 4.50 per cent had been well in alignment of the analysts’ forecasts.

Central Bank of Russia hints further rate-cut as disinflation factors fathom

Meanwhile, citing that the Central Bank of Russia had been closely monitoring the development of a late-epidemic in the country and might “evaluate the feasibility” of further rate-cut at the next meetings, the Central Bank said in a press release, “Disinflation factors are stronger than previously expected due to the longer duration of restrictive measures in Russia and in the world ...

Under these conditions, there is a risk of a significant deviation of inflation down from the target of 4% in 2021. The decision at a key rate is aimed at limiting this risk and keeping inflation close to 4%”. In tandem, while the policymakers’ tone had altered substantially regarding further rate cuts compared to the prior press releases given the extent of fiscal damage the world’s fifth-largest economy by PPP (Purchasing Power Parity) and the eleventh-largest by nominal GDP (Gross Domestic Product), had been facing off, referring to a sheer uncertainty over possibilities of a further rate-cut in a near-term outlook, an Alfa Bank analyst Natalia Orlova said following the announcement, “The Central Bank sounds on release as if it’s not sure of the need to further reduce the rate at the next meetings ...

I think that in the conditions of the risks of the second wave of the epidemic it will be extremely difficult to revive lending and it may turn out that in a few months the risks of inflation deviating from the target will continue to be significant, and the Central Bank will have to go for a further strong reduction in rates. ”