Bank of Russia to release interest rate decision
Russia’s central bank has taken a rather dovish disposition in 2020 to support Moscow’s flagging economy, lowering interest rates from 6.2% in January to 4.25% by August. Expansionary monetary policy combined with the unprecedented collapse of oil prices and pandemic induced uncertainty has seen the ruble lose 15% of its value against the dollar, despite the greenback’s slide to its weakest level in over two years.
Highly dependent on the oil and gas sector, Russia suffered a significant disruptive shock in March when a price war between Moscow and Riyadh exacerbated the COVID-19-induced demand drop, sending oil prices crashing. Accordingly, Russia’s GDP contracted by 8% in the second quarter.
Expect the Bank of Russia to maintain a 4.25% rate, with the possibility of a cut to 4.0%. Bank of Russia Deputy Chairman Alexei Zabotkin’s statement that August inflation surpassed forecasts signals a high likelihood for a hold. Despite worries that decreased demand would make it difficult to attain a 4% inflation target, geopolitical pressures may influence policymakers to hold rather than cut. Potential sanctions against Moscow for its role in the political crisis engulfing neighbouring Belarus and the poisoning of Kremlin critic Alexei Navalny have seen the ruble’s value continue to slid. In the medium-term, oil markets, rather than interest rates, will determine economic and monetary trajectory.
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