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Russia suddenly lowers interest rates

In an extraordinary meeting on May 26, the Central Bank of Russia announced to lower interest rates from 14% to 11%.

“Inflationary pressures have eased thanks to an increase in ruble prices as well as a marked decrease in inflation forecast for households and businesses,” the Central Bank of Russia said in a statement yesterday. Inflation is forecast at 5% – 7% this year, down sharply from 17.5% this month.

The Central Bank of Russia said it may continue to cut interest rates. Interest rates in Russia ever up 20% after it launched a military operation in Ukraine at the end of February, to prevent Western sanctions from causing a financial crisis.

Ruble recently price increase thanks to strong revenue from oil and gas and government support. This has partly reduced the pressure on the Russian economy.

Ruble at one point dropped to 135 rubles per dollar because half of Russia’s foreign exchange reserves were frozen. Hundreds of multinational companies have left the country. Russia is also banned from accessing many Western technologies and services.

However, the Russian local currency then gradually strengthened and is now among the best performers in the world this year, according to Reuters. The reason is the tightening capital control policy of the Russian government and the increase in global fuel prices. One dollar is now worth 62 rubles.

Western efforts to curb Russian energy exports have also made little progress. Rising oil and gas prices are even benefiting the Kremlin.

“The bottom line is that the huge revenues from oil and gas are helping policymakers pull back from emergency economic support,” said William Jackson, an economist at Capital Economics. On that basis, easing capital controls and lowering interest rates further seems feasible.”

Over the past few years, Russia has built an “economic fortress” to withstand Western sanctions, amassing large reserves for emergency use. On May 25, Russia announced a 10% increase in pensions and minimum wages to support people in inflation.

Ha Thu (according to CNN)

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