Russia cuts rates again in bid to contain surging rouble

Russia’s central bank has slashed interest rates for the third time in a month as it tries to pull down the value of the rouble.

The Central Bank of Russia cut its key rate from 14pc to 11pc, saying price pressures were easing "on the back of the rouble exchange rate dynamics as well as the noticeable decline in inflation expectations of households and businesses."

The rouble fell 6.9pc, following a 5.7pc drop on Wednesday.

After plunging to nearly half its pre-war value following the invasion of Ukraine, the currency rapidly recovered, buoyed by Russia’s massive trade surplus and capital controls. Its trade surplus reached $58bn in the first quarter of the year, the highest in recent history.

The central bank's meeting was brought forward two weeks and occurred earlier in the day than usual. There was no accompanying press conference by Elvira Nabiullina, its governor.

Official data says annual consumer price inflation reached 17.8pc in April, the highest since the early years of Vladimir Putin’s regime.

William Jackson from Capital Economics said the move “was clearly motivated by the remarkable rally in the rouble”, which was trading at 60 to the dollar earlier in the week. Before the invasion it had traded around 75 roubles to the dollar, yet in March it dropped close to 140.

The rouble’s strength is causing concern in the Kremlin as it risks making the revenues from Russia’s exporters less valuable domestically, potentially tipping the country into a budget deficit.

The CBR said it “holds open the prospect of a [further] key rate reduction at its upcoming meetings”.

Officials added: “External conditions for the Russian economy are still challenging, considerably constraining economic activity. Financial stability risks decreased somewhat, enabling a relaxation of some capital control measures.”

The central bank already cut rates twice in April, by three percentage points each time, after hiking its key rate to 20pc to rein in inflation at the onset of the conflict.

Mr Jackson said: “We suspect that the CBR won’t continue this pace of easing."

Lowering the cost of borrowing is expected to stimulate economic activity at a time when Russia faces a severe economic slowdown.