Russian Central Bank May Cut Rates Again

The Central Bank of Russia could soon cut interest rates once more to cope with the hardships of the COVID-19 crisis and the inflation risks, according to a market poll reported by Reuters.

The move would strengthen the Russian Rouble (RUB) as Moscow aims at restoring economic recovery next year after being hit by the pandemic coupled with a drop in crude oil prices.

Accordingly, this month could see the Russian central bank lowering its main rate to 4% from a current 4.25%.

Further cuts remain unlikely, with the majority of market experts expecting rates to remain at 4% during 2021.

It is worth noting that Russian monetary policymakers may opt to maintain the current rate despite the aforementioned factors.

The Russian gross domestic product (GDP) declined by 4.2% in the first half (H1) of 2020, according to Russia’s Minister of Economy, Maxim Reshetnikov.

The ministry reportedly expects the economy to retreat by 4.8% in 2020 and expects the recovery to the pre-COVID-19 levels to take place by the fourth quarter (Q4) of 2021.

During the second quarter (Q2) of 2020, the Russian economy contracted by 8.5% on an annual basis.

The economic downturn came amid the coronavirus (COVID-19) outbreak, with lockdowns and preventive measures casting their shadows economic activities.

Next year, Russia’s gross domestic product (GDP) is expected to decline by 4.5% to 5.5%, with the economic recovery set to take place in 2022.

Meanwhile, the inflation rate is expected to reach 3.7% by the end of the year.

The Russian Central Bank cut its key interest rate to a record low of 4.25% in July and stated that it would consider the need for further monetary easing amid low inflation and a shrinking economy.

The cut was in line with market polls, with expectations to cut the cost of lending for the fourth time this year to combat the economic effects of the COVID-19 pandemic.

The bank revised its economic forecast and expected GDP to contract by 4.5% to 5.5% in 2020, before returning to growth in 2021.

The Central Bank of Russia previously expected the local GDP to contract by 4% to 6%, while the inflation target remains at 4%.