The Russian Central Bank has cut the key interest rate again from 17% to 16.5%, as most experts had predicted. The cut is symbolic: the Central Bank itself doesn’t even hide that it was forced into it. The main question now is whether this is a one-off concession or the regulator finally caved in to government pressure. For now, it looks more like the first option. But the second cannot be ruled out. The official explanation for the rate cut given in the press release is very telling: “Sustained indicators of current price growth have not materially changed and remain above 4% on an annualized basis. The economy continues to return to a trajectory of balanced growth. In recent months, lending activity has picked up. Inflation expectations remain high.” Almost every sentence here contradicts what actually happened. If price growth is still sustained and has not moved the economy even a jot toward the 4% inflation target, why decide to cut the rate? How is that going to bring the target closer?
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