Russian inflation slows sharply
(MENAFN) Russia’s monthly inflation rate slowed significantly in June, signaling that the central bank’s prolonged period of high interest rates is finally easing price pressures, Bloomberg reported on Thursday.
Following Western sanctions over the Ukraine conflict, the Bank of Russia had aggressively raised its key interest rate from 9.5% to as high as 21% to support the ruble and control inflation. Last month, the central bank cut its key rate by 100 basis points to 20%, citing signs of inflation slowing. This was the first rate cut since 2022 when the bank adopted tight monetary policies to stabilize the economy amid sweeping restrictions.
Although annual inflation remains high at 9% — still more than double the central bank’s 4% target — monthly price increases have eased to levels consistent with that goal, according to data released Thursday. Bloomberg described this as the most substantial indication yet that Russia’s inflation battle may be turning a corner after a prolonged period of strict monetary policy.
The Bank of Russia uses the seasonally adjusted annual rate (SAAR) of monthly price growth to assess inflation trends. If the current pace continues, analysts expect inflation could return to target levels next year. This is likely to boost expectations of further, and possibly larger, interest rate cuts sooner than previously anticipated, Bloomberg noted.
Inflation expectations — another crucial factor for future rate decisions — remained steady at 13% in July for the second consecutive month, according to the Bank of Russia. Deputy Governor Aleksey Zabotkin said last month that inflation expectations aligned with a low-inflation environment should be closer to 8%, highlighting the gap the central bank is monitoring as it considers further easing.
Despite this, the recent moderation in price growth suggests the bank may shift to a more dovish stance, prioritizing economic growth over inflation control by reducing interest rates. Zabotkin indicated that policymakers might discuss cutting rates by more than 100 basis points at their next meeting.
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