The Board of Directors of the Bank of Russia, at an extraordinary meeting on May 26, decided to reduce the key rate by 3 percentage points, to 11%. Before that, in April, the regulator twice reduced the rate by 3 percentage points, after in February, against the background of increased inflation and devaluation risks, it increased it from 9.5% to a record 20%.
In the release, the Central Bank points to a weakening of inflationary pressure due to the strengthening of the ruble, as well as a decrease in inflation expectations of the population and business. Inflation as of May 20 slowed to 17.5%, declining faster than the Central Bank forecast. The Central Bank explains the need to reduce the rate by the fact that the inflow of money to deposits continues, and credit activity remains low, which limits the pro-inflationary risks.
The Central Bank's report predicts inflation at the end of 2023 at the level of 5-7% and its return to the target value of 4% in 2024 (this corresponds to the medium-term forecast of the Bank of Russia), but expectations for the end of 2022 are not specified.
The regulator allowed a further reduction in the rate at the next meetings. In the release, the Central Bank emphasizes that economic activity in Russia is significantly limited due to difficult external conditions, while risks to financial stability have decreased, which made it possible to mitigate capital controls.
It should be noted that for the third time in three months, the regulator makes a decision on the rate at an unscheduled meeting. This time, an unscheduled meeting was announced — this was the first time the Central Bank used such a technique. The scheduled meeting of the Central Bank's Board of Directors on the key rate will be held on June 10.