Bank of Russia to release interest rate decision
Faced with a current benchmark rate of 5.5% and a projected 2020 contraction of 6%, the Bank of Russia (BoR) is expected to announce a modest rate cut today.
Unlike the rates of Western European countries, the Russian exchange rate has remained relatively stable since 2016. The 5.5% benchmark is comparatively attractive to the negative rates of Russia’s peers, and inflation is at its lowest level in a decade. Moscow’s sovereign debt level of 15% is likewise one of the world’s lowest.
Stable inflation, stable foreign exchange rates, low debt levels and an interest rate with significant wiggle room gives the BoR tremendous leverage to stimulate growth via monetary policy rather than massive fiscal expenditure—the approach taken in Europe and the US. The BoR has managed to maintain market attractiveness despite years of Western sanctions and plunging global commodity prices. A modest rate cut today will test investors’ tolerance for shifts in monetary policy. If there is little pushback, Russia’s sovereign borrowing capacity could be boosted significantly, putting Moscow in a stronger fiscal position than neighbours and rivals.
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