[Asia Economy Reporter Ki-min Lee] The Central Bank of Russia, which had consecutively lowered the benchmark interest rate since mid-last year, maintained the rate at 6% per annum on the 20th (local time). This move appears to consider the risks of rising consumer prices due to the depreciation of the Russian currency, the ruble, as well as the global economic difficulties caused by the COVID-19 pandemic.
According to TASS news agency and others, the Central Bank of Russia announced the decision to maintain the benchmark interest rate in a press release on the day, stating that "the situation in February and March is significantly deviating from the Central Bank's baseline forecast scenario," and explained that "this is related to the spread of COVID-19 and the rapid decline in international oil prices."
The Central Bank said, "The depreciation of the ruble is a temporary inflationary stimulus, and as a result, the inflation rate this year may exceed the target (4%)," adding, "However, changes in domestic and foreign demand (decline) related to the slowdown in international economic growth and increased uncertainty can act as factors to suppress inflation."
The Central Bank of Russia also stated that it will make additional decisions on the benchmark interest rate considering the inflation rate fluctuations based on the 4% inflation target, economic growth outlook, and domestic and international financial market reactions.
Recently in Russia, due to the failure of major oil-producing countries to agree on additional production cuts, the international oil price plummeted, and the outlook for international economic growth slowed due to the global spread of COVID-19. As a result, the ruble depreciated, the exchange rate soared, and the stock index fell sharply, causing turmoil in the financial markets.
Accordingly, there were expectations that the Central Bank would stabilize the market through the benchmark interest rate. However, since there are negative effects associated with both raising and lowering the interest rate, it is analyzed that the bank chose to keep the rate unchanged. Previously, the Central Bank of Russia lowered the benchmark interest rate from 6.25% to 6% in early last month.
After the failure of the Organization of the Petroleum Exporting Countries (OPEC) member countries and 10 major non-OPEC oil-producing countries including Russia to agree on additional production cuts on the 6th, international oil prices plunged, causing the ruble and stock prices, which heavily depend on crude oil exports, to fall sharply, triggering turmoil in the financial markets. The depreciation of the ruble and signs of rising consumer prices pressured the Russian monetary authorities to raise the benchmark interest rate.
The Russian economy has faced difficulties in recent years due to Western sanctions following the 2014 Ukraine crisis, the US-China trade dispute, and low oil prices.
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