Russia partially pulls back emergency interest rate hike as the ruble rebounds and foreign-exchange reserves grow
- Russia's central bank lowered its key interest rate to 17% from 20% after an unscheduled meeting Friday.
- Policymakers cited a slowdown in inflation, helped by the ruble's recovery.
The Russian central bank trimmed its benchmark interest rate hike to 17% Friday after lifting it to 20% when Vladimir Putin first launched his war on Ukraine.
Following an unscheduled meeting, policymakers said that while the economy still faces challenges, the ruble's rebound has reduced inflationary risks, which allows it to reduce key rates after more than doubling them on February 28.
"The latest weekly data point to a noticeable slowdown in the current price growth rates, including owing to the ruble's exchange rate dynamics," the central bank said in a statement.
In fact, the ruble has bounced back pre-invasion levels as strict capital controls remain in place. The government banned citizens from pulling more than $10,000 of foreign currency, as well as moving cash to foreign accounts. Plus, it blocked foreign investors from selling domestic assets.
Meanwhile, the Russian central bank also announced Thursday that its foreign-exchange reserves rose marginally last week.
For the week ending April 1, it valued its foreign-currency assets and gold at $606.5 billion, compared to $604.4 billion the week ending on March 25. However, those reserves were valued at $643.2 billion February 18, before the war.
Russian energy sales are helping to bring in foreign currency. While the European Union has vowed to cut Russian energy imports and backed a proposal Wednesday to ban Russian coal, oil and gas continues to flow to states that the Kremlin has dubbed "unfriendly."
Since Russia invaded Ukraine, the EU has paid $38 billion for Russian energy, a top EU official said Wednesday.
Russia's central bank has scrambled to prop up the country's economy to stave off sanctions. But some analysts say the ruble's recovery is not actually a reflection of the economy's strength but rather a sign of the financial clamps and strict rules the government put in place.
Experts are forecasting a brutal year ahead for Russia as sanctions continue to damage the economy, with some analysts saying it'll lose 15 years of growth.