Russian inflation cooling down
Last month, the regulator cut its key interest rate by 100 basis points to 20%, citing a slowdown in inflation. It marked the first rate reduction since 2022 when the central bank adopted a tight monetary policy to stabilize the economy amid a wave of restrictions.Although annual inflation remains elevated at 9%, well above the central bank's 4% target, monthly price growth has slowed to a pace consistent with that goal, according to Bank of Russia data released on Thursday. This marks the 'first meaningful sign that the central bank's battle against inflation may be turning a corner after a protracted period of ultra-tight monetary policy,' the outlet said.
To gauge current inflation trends, the central bank monitors a seasonally adjusted annual rate (SAAR) of monthly price growth. If the current trajectory holds, analysts expect inflation to return to target sometime next year. That is likely to fuel expectations of earlier and potentially deeper key rate cuts than previously anticipated, Bloomberg noted. Inflation expectations, another key factor in rate decisions, held steady at 13% in July for a second straight month, according to Bank of Russia. Deputy Governor Aleksey Zabotkin said last month that estimates aligned with low inflation should be closer to 8%, highlighting a gap the bank continues to monitor as it weighs further easing.Even so, the recent slowdown in price growth suggests the central bank could shift toward a more dovish stance – meaning it could prioritize economic growth over inflation control by cutting interest rates. Zabotkin said rate setters could consider cutting borrowing costs by more than 100 basis points at next week's meeting.
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