It is not only the European Central Bank that reduces its guide rates. This Thursday, the president of the ECB Christine Lagarde announced an eighth drop in a year with a deposit rate that is now 2% against another 4% in May 2024.
This Friday, it was the Central Bank of Russia (BCR) who reduced his for the first time in more than two and a half years. Its key rate is now 20%, slightly diminished compared to its previous rate of 21%, which had been its highest level in two decades, and has ensured rampant inflation curriculum for months.
This is the first drop in the BCR key rate since September 2022.
Prices have increased rapidly throughout the Russian economy for months, fueled by a massive military expense to carry out the conflict in Ukraine and a serious work shortage. Exorbitant interest rates have also affected barely affected companies, some of the greatest business leaders in the country pressure on the central bank to soft their monetary policy. According to the BCR, on June 2, inflation slowed down 9.8% for a year, but is still far from the 4% target established by the authorities.
Western sanctions
Despite the strong Western sanctions that attack it, Russia registered strong economic growth in 2024, mainly thanks to the mass state spending in defense, which should increase even more by almost 30% in 2025. However, economists have warned that this growth fired by the defense industry did not reflect a real increase in productivity.
Interest rate increases cannot be an effective tool to reduce inflation, because a large part of the expense is managed by the State, which is less reactive to the increase in loan costs, according to analysts.
Source: BFM TV
