Bank of Russia Cuts Key Rate, Predicts 4-6% Drop in GDP This Year

The Bank of Russia reduced the key rate by 50 basis points at once for the first time since October 2019 to 5.5% per annum, and left the door open to further reductions at future monetary policy meetings, RFE/RL reports.

The move comes as the spread of the coronavirus pandemic and a historic plunge in oil prices of late pose unprecedented threats to the Russian economy.

The regulator said in a press release on Friday it expects a decrease in the country’s GDP by 4-6% in 2020 and its recovery growth in 2021-2022.

“The Bank of Russia has substantially reviewed its baseline scenario parameters. GDP is forecast to decrease by 4-6% in 2020. The Russian economy is thereafter expected to follow a recovery path with growth predicted to total 2.8-4.8% in 2021 and 1.5-3.5% in 2022,” according to the press release.

“The spread of the coronavirus pandemic in Russia and the restrictive measures in place to address it have combined with a drop in external demand and a further decline in the prices of oil and other export goods to make a substantial negative impact on economic activity. In this environment, Q2 GDP is set to decline,” the regulator said.

“The pace of economic recovery will in large measure depend on the amount and efficiency of the Government and Bank of Russia’s measures aimed at mitigating the fallout from the coronavirus pandemic,” the regulator added.

The Bank of Russia also revised its inflation forecast, projecting between 3.8% and 4.8% for 2020 with a stabilization at its 4% target in the future. In its press release Friday, the central bank said disinflationary pressure from shutdowns compensated for inflationary factors such as the fall in oil prices.