Bank of Russia Hints at Big Rate Cut as Virus Crisis Rocks Economy

The head of the Bank of Russia has given her strongest hint yet that the regulator will cut interest rates to help the economy weather the coronavirus pandemic, Bloomberg informs.

At a press conference Friday, governor Elvira Nabiullina said “we will already be able to substantively consider the issue of reducing the key rate at the next board of directors meeting,” scheduled for April 24.

“As always, we will consider a range of different economic scenarios and, taking these into account, will evaluate what space is available for easing monetary policy and what steps we should take,” she added.

The central bank’s key rate is currently at 6%. Unlike many other central banks, Russia has not yet cut rates in response to the economic crisis triggered by the coronavirus pandemic and global shutdowns of factories, shops, travel, and movement.

Naibullina pointed to drastic forecasts from the International Monetary Fund (IMF) for a 3% fall in global GDP as a sign that the world economy is on course for a deeper crisis than in 2008-09.

“We believe that it is likely that the Central Bank will opt for a 50 basis point [0.5 percentage point] or even a larger adjustment of the key rate,” said Alexander Isakov, chief economist at VTB Capital. That would take interest rates to 5.5% — a level not seen since March 2014.

Alongside a probable rate cut, the Central Bank will also produce the first official assessment by the Russian authorities of how badly the crisis will affect the Russian economy, with a new set of growth and inflation forecasts. Analysts expect this take to be softer than the IMF’s — which predicted a 5.5% fall in 2020 — but still to show that Russia will face a serious recession this year.

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