MOSCOW: The Russian Central Bank is reportedly planning to cut rates. Russian newspaper Izvestia is reporting that the central bank will cut rates by 2-3% from its current rate of 17% in the first quarter of 2015, according to a source who participated in a meeting of the National Financial Council (NFC) under the central bank.
“Representatives of the regulator explained [the rate cut] by noting that the increase in the rate did not bring the expected result,” the source told Izvestia. “It was intended to curb the rise in the dollar and the euro, but that did not happen. The course grew, the reaction from the population and businesses was really negative. The central bank basically admitted that it made a mistake during the last NFC meeting .
Additionally, the head of the central bank, Elvira Nabiullina, named the conditions for lowering the key rate during a press service on Wednesday:”The Board of Directors of the Bank of Russia, taking the decision on the key rate, first and foremost, is based on the need to curb inflation, which in the current environment is a high-priority problem for people and businesses. The Bank of Russia will be ready to lower the key rate if there’s a formation of a stable downward trend in inflation and inflation expectations, which are currently still high.”
Back in mid-December, the Bank of Russia unexpectedly hiked rates to 17% from 10.5%. The bank’s statement said the decision was driven by the need to limit inflation risks and significant devaluation in the ruble.
The day following the rate hike, the Russian currency fell to new lows, reaching 80 rubles to the dollar.Russians reacted extremely negatively to the rate hike. One banker apocalyptically declared that this was “the end of the banking system,” regular Russians were scrambling to get their hands on dollars, and Russia’s richest lost $10 billion in the three days following the decision.
And things haven’t gotten much better since then. Currently, the ruble is trading at around 66 per dollar, inflation is high, and the collapsing currency has led to food shortages.Although the press service of the central bank has so far denied this, on Jan. 16 the bank’s first deputy chairman, Alexei Simanovskiy, stated that he hoped for an opportunity to reduce the key rate in the near future, according to Izvestia.
