Russia lowers interest rates as the economy reels from the war in Ukraine

Russia’s central bank on Friday delivered another interest rate cut this month in an attempt to support an economy plagued by the war in Ukraine and Western sanctions.

The Russian central bank lowered its key interest rate to 14% from 17% after already reducing borrowing costs from 20% on April 8. Politicians led by central bank governor Elvira Nabiullina doubled the key interest rate at an emergency meeting on 28 February. as they struggled to support the ruble after Western governments froze nearly half of the country’s foreign exchange reserves.

The central bank introduced capital controls that stop the Russians from moving their money out of the country and demanded that the country’s exporters convert most of their foreign exchange earnings into rubles.

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These measures have helped strengthen the ruble, and the central bank said on Friday that it had helped curb the rise in consumer prices, which had risen in the weeks immediately following the invasion.

But the central bank also said Western sanctions would inflict significant economic damage this year, predicting a fall in the country’s gross domestic product of between 8% and 10%, which is in line with the International Monetary Fund’s latest assessment.

“Despite the gradual change in the country and the raw material structure for exports and imports, as new suppliers and sales markets emerge, companies are experiencing significant difficulties with production and logistics,” the central bank said.

The campaign to isolate Russia economically over the war in Ukraine has blacklisted most of Russia’s largest banks. Western sanctions have also severed many of Russia’s connections to international logistics networks, making it difficult for companies to obtain necessary parts.

The consequences of severe economic sanctions against Russia are already being felt across the globe. WSJ’s Greg Ip joins other experts to explain the significance of what has happened so far and how the conflict could change the global economy. Photo illustration: Alexander Hotz

Although reversing the fall of the ruble has helped to curb inflation in recent weeks, the central bank still expects the inflation rate to rise in the coming months, averaging between 18% and 23% this year.

In response to the sanctions, the Russian government wants to make its economy more self-sufficient and is also looking for alternative sources for the sophisticated electronics it can no longer buy from Western suppliers.

The central bank said that success with these targets will be the key to bringing inflation down.

“Further inflationary movements will be shaped by such efficient factors as the efficiency of import substitution processes and the scale and speed with which imports of finished goods, raw materials and components will recover,” the central bank said in its statement.

Russia’s invasion of Ukraine

Write to Paul Hannon at paul.hannon@wsj.com

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