For the first time since July 2023 the Central Bank of Russia cut interest rates, but a strong ruble is a double edged sword for Russia – with negative effects on exports, and in particular oil, being a real concern. That said, with current events in the skies over Iran already influencing the price of the oil that Russia continues to export to nations such as China and India, and the real potential for further developments to boost that price considerably more, Russia could well find itself earning a war dividend that it did not budget for.
Monetary policy
Having held its key rate steady at an all-time high of 21% on 26th April the Central Bank of Russia (CBR) moved, on 6th June, to cut the rate by 100bp to 20%. Recall that, since July 2023, the CBR had progressively raised interest rates by a cumulative 1,350bp. This cut, then, marks a departure from a long running trend of tightening. The reason that the CBR now feels confident in loosening is that the output gap has now been reduce...
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