By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News, May 26, 2022

Headquarters of the Bank of Russia, Moscow. Photo credit : Eurasia Business News.

The central bank of Russia at an unscheduled meeting on May 26 decided to reduce the key annual interest rate immediately by 300 basis points from 14% to 11%. Recent weekly data indicate a significant slowdown in the current rate of price growth in Russia, said the Central Bank in a press release. The weakening of inflationary pressure would be facilitated by the dynamics of the ruble exchange rate and a noticeable decrease in inflation expectations of the population and business. The regulator does not exclude a further reduction in the key rate at the next meetings.

Russian annual inflation in April reached 17.8%, however, according to estimates for May 20, slowed to 17.5%, declining faster than the April forecast of the Bank of Russia.

The Central Bank also noted that the inflow of funds for term ruble deposits continues, and credit activity remains low. “This limits proinflationary risks and necessitates easing monetary conditions,” reported the press service of the Bank of Russia.

Meanwhile, external conditions for the Russian economy remain difficult, which significantly limits economic activity, noted the Central Bank. “Risks to financial stability have somewhat decreased, allowing for the mitigation of certain measures to control the movement of capital,” said the press release.

The regulator allowed the possibility of a further reduction in the key rate at the next meetings. The Central Bank will make decisions on this issue “taking into account the actual and expected dynamics of inflation relative to the target, the process of structural adjustment of the economy, as well as assessing the risks from internal and external conditions and the reaction of financial markets to them.”

The next meeting of the Board of Directors of the Bank of Russia, which will consider the issue of the key rate, is scheduled for June 10. A press release on the decision of the Board of Directors will be published at 13:30 Moscow time.

On April 29, the Bank of Russia decided to reduce the annual key rate by 300 b.p., to 14%. Prior to this, the regulator on April 8 (at an extraordinary meeting) lowered the rate also by 300 b.p. – to 17%. The Russian central bank sharply raised the rate – from 9.5% to 20% – at an extraordinary meeting on February 28 in response to the growth of devaluation and inflation risks, after the start of the Russian military campaign against Ukraine. In March, the Bank of Russia kept it at 20%, amid Western monetary sanctions.

During an extraordinary meeting on February 28, the Central Bank of the Russian Federation urgently raised the key rate from 9.5% immediately to 20%, in order to support the national currency and the economy against Western monetary sanctions. Three months later, it seems that the Bank of Russia managed to protect the value of the ruble. On May 23, the ruble had gained 2.3% to trade at 61.38 against the euro, approaching its strongest point since June 2015 of 59.02 for one euro, a record also reached on Friday.

The ruble has strengthened by about 30% against the dollar this year despite a large-scale economic crisis in Russia, making it artificially supported by controls imposed in late February to protect russia’s financial sector after tens of thousands of troops were sent to Ukraine. In addition, Russia demands that foreign buyers pay for gas in rubles, which also contributed to the recent ruble rally.

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International reserves of the Russian Federation decreased over the week by 1.1% (or $ 6.4 billion) and as of May 13, 2022 amounted to $ 585.7 billion, the Bank of Russia said in a statement.

The regulator said that reserves decreased as a result of a negative revaluation.

As of May 6, 2022, international reserves were at $592.1 billion.

Since 2014 Russia has more than doubled the amount of gold in reserves. Also, the Bank of Russia was the largest consumer of gold in the country. Russia was the second largest producer in the world in 2020 and accounted for 9.88 per cent of total global production, with 331.1t of mined gold. Russia’s international monetary reserves rose by $3.6 billion from February 21 to 24, reaching a new all-time high of $643.2 billion. 

At the end of January, the value of monetary gold in Russia’s international reserves was $ 132.26 billion, the share of gold in reserves was 21%.

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On March 1st, the United States issued a directive prohibiting Americans from any transactions with the Bank of Russia, the Russian Federal Ministry of Finance and the Russian National Welfare Fund (NWF). Similar decisions were announced by the UK, Japan, Canada, and Switzerland.

Earlier, on February 28, the European Union approved the decision to freeze the assets of the Central Bank of the Russian Federation. Freezing of international reserves of the Central Bank of the Russian Federation was also included in the sanctions package of Australia.

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