The Central Bank of Russia (CBR) is today expected to maintain interest rates at 4.25%. The decision will be followed by a virtual media conference with Bank Governor Elvira Nabiullina to discuss the medium-term forecast.
The CBR began cutting rates early this year in response to plunging oil prices and pandemic-induced economic challenges. However, since July, the cost of lending has remained unchanged. During its last meeting in September, the CBR decided to hold the benchmark interest rate at 4.25% due to a declining ruble and high inflation. Now, the CBR hopes to continue gradually reducing the interest rate to reach 4% by the end of 2020.
Nevertheless, political tensions, a surge in COVID-19 cases and the uncertainty regarding a potential renewal of U.S. sanctions might limit the CBR’s ability to further lower rates. The possibility of a cut to 4.0% exists as Russia attempts to control for decreased demand and stabilize inflation rates, but external factors endanger the medium-term outcomes of such a step. Ultimately the reduction of the interest rate depends on how disinflationary risks are affected by the pandemic. As such, the decision today will likely be adjusted as structural effects of global economic anxiety pave out.
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