Russia cuts interest rate 100 bp to 17% even as inflation expectations remain high

The Central Bank of Russia reduced its benchmark interest rate by 100 basis points to 17% even as governor Elvira Nabiullina noted in a 12 September statement that inflation expectations remain elevated.

As of 8 September, annual inflation was 8.2%, the central bank said in a separate press release.

“Inflation expectations have not changed considerably in recent months”, according to the press release. “In general, they remain elevated. This may impede a sustainable slowdown in inflation.”

Even record interest rates of over 20% have failed to quell a long spell of high inflation — which has run consistently at more than double the bank’s target rate of 4.0% — since Russia intensified its war against Ukraine in February 2022.

German Gref, the head of Russia’s largest bank, state-owned Sberbank, had warned a week before that the country’s economy was stagnating and would slip into recession unless interest rates were cut.

Prominent figures in government and industry have continued to warn of damaging repercussions for the economy since the interest rate reached a peak of 21% in October last year — and have continued to raise the alarm even as the central bank began lowering it in June.

“Pro-inflationary risks still prevail over disinflationary ones in the mid-term horizon”, the central bank said in the press release. “The key pro-inflationary risks are associated with a longer upward deviation of the Russian economy from a balanced growth path and high inflation expectations, as well as with the deterioration in the terms of external trade.”