The Bank of Russia has cut its key interest rate to 14.25% from 14.5% – less than analysts had expected – against a backdrop of economic difficulties linked to rising spending on the war in Ukraine, Western sanctions and a fuel crisis triggered by Ukrainian drone strikes.
At a Friday press conference, Central Bank chief Elvira Nabiullina, who appeared in public for the first time since early June and explained her absence by illness, made it clear that monetary policy was unlikely to be eased any time soon.
According to the head of the regulator, rates may remain elevated for longer because of "pro-inflationary risks" against the backdrop of higher-than-expected budget spending over the next three years. Nabiullina described this as a "more expansionary fiscal policy".
The spike in petrol prices was also one of the key factors behind the decision to opt for a more modest rate cut.
"Rising petrol prices may also affect inflation expectations, as this is a highly sensitive commodity both for people and for companie_s_", Nabiullina said, thereby linking Ukraine's air campaign directly to specific problems in the Russian economy.
