Russia's central bank has announced another cut in its key interest rate beginning next week, saying the risk of price increases and financial instability was no longer increasing.
The Bank of Russia said on April 29 that it was slashing the rate from 17 percent to 14 percent -- the second rate-cut announcement this month.
The bank hiked the rate to 20 percent in late February after Russia’s unprovoked invasion of Ukraine began and after Western nations imposed sweeping sanctions. It lowered the rate to 17 percent earlier this month.
As it announced the rate cut on April 29, the central bank predicted that Russia’s economy would shrink by 8 percent to 10 percent this year and said it faces a "challenging" situation due to sanctions.
"We are in a zone of colossal uncertainty," both in terms of supply and demand, the bank's governor, Elvira Nabiullina, told journalists after the latest rate-cut announcement.
Ratings agencies have downgraded Russia and warned that payments of dollar-denominated debt in local currency would constitute a sovereign default.
The Finance Ministry on April 29 announced that it recently made two international debt payments in dollars despite previously vowing they would be paid in rubles.
Nabiullina insisted that the ministry has resources to make such payments and "from the economic point of view, there cannot be any talk of default." But she admitted there were "difficulties with payments that we see."
The central bank said annual inflation was 17.6 percent as of April 22 and forecast that it would peak at up to 23 percent by the end of 2022 before slowing next year.
The bank has set an inflation target of 4 percent and vowed that its monetary policy "will ensure a return of inflation to target in 2024."
While concerned about inflation, the bank said its monetary policy would also focus on the need for a "structural transformation of the economy" given the changed circumstances.
The ruble plunged to historic lows against the dollar and the euro in March. It has since recovered to levels before the start of the invasion on February 24, rising on April 29 to a more than two-year high against the euro.
The central bank also said that imports are declining more markedly than exports due to external trade and financial restrictions.
It released a baseline forecast for this year for imports to fall by up to 36.5 percent and exports by up to 21 percent.