Russia Cuts Interest Rate as Economy Reels

Russia’s central bank Friday delivered a second cut in its key interest rate this month in an effort to support an economy battered by the war in Ukraine and Western sanctions. 

The Bank of Russia lowered its key interest rate to 14% from 17%, having already cut borrowing costs from 20% on April 8. Policy makers, led by central bank chief Elvira Nabiullina, doubled the key rate in an emergency meeting on Feb. 28 as they scrambled to support the ruble after Western governments froze almost half of the country’s foreign exchange reserves.

The central bank imposed capital controls that stop Russians from moving their money out of the country and required the country’s exporters to convert most of their foreign-currency revenues into rubles.


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Those measures have helped strengthen the ruble and the central bank Friday said that had helped slow the rise in consumer prices, which had surged in the weeks immediately following the invasion. 

But the central bank also said that Western sanctions will inflict significant economic damage this year, and forecast a decline in the country’s gross domestic product of between 8% and 10%, which is in line with the International Monetary Fund’s most recent assessment. 

“Economic activity is declining” Ms. Nabiullina told reporters. “The termination of long-term economic relations will have a negative impact.”

The campaign to isolate Russia financially over the war in Ukraine has blacklisted most of Russia’s largest banks. Western sanctions have also severed many of Russia’s links to international logistics networks and made it difficult for businesses to get hold of needed parts. 

The consequences of harsh economic sanctions against Russia are already being felt across the globe. WSJ’s Greg Ip joins other experts to explain the significance of what has happened so far and how the conflict might transform the global economy. Photo Illustration: Alexander Hotz

“The question is how long these difficulties will persist and how quickly businesses will be able to find new suppliers and replace the missing links of the production chain,” Ms. Nabiullina said.

Although reversing the ruble’s slide has helped slow price rises over recent weeks, the central bank still expects the inflation rate to increase over the coming months and average between 18% and 23% this year. 

With the ruble having steadied, shortages of goods and services previously supplied by foreign businesses that have withdrawn from the country, or which were imported, are the main driver of price rises.

Ms. Nabiullina highlighted shutdowns in the automobile industry, where foreign firms such as Renault SA were major manufacturers, as one example of a general trend in which the supply of many goods and services has fallen more sharply than demand, pushing prices higher.

That rise in prices has dashed the hopes of many Russians.

“The visions of replacing the car will remain a dream indefinitely,” said Tatyana Ivanova, who works in online sales in St. Petersburg. “It just can’t cost that much.”

The central bank’s forecasts, and Ms. Nabiullina’s comments in a news conference that followed the rate cut, comprise the most comprehensive view of the outlook for the economy offered by Russian authorities since the February invasion.

In response to the sanctions, the Russian government wants to make its economy more self-sufficient and is also looking for alternative sources for the sophisticated electronics it can no longer buy from Western suppliers. 

Ms. Nabiullina said the recent cuts in the key interest rate were intended in part to help businesses as they invest to replace imported goods with their own products.

The central banker said that while keeping inflation low is still a key goal, clamping down on inflation too firmly by keeping interest rates very high would significantly weaken demand, and give businesses little incentive to make the investments needed to replace imports.

“We have no intention to quickly bring inflation back to the target,” she said. “Squeezed demand would hamper the structural transformation of the economy.

That stress on supporting investment marks a slight shift in focus for the central bank, which under Ms. Nabiullina’s leadership has been firmly fixed on keeping inflation low and paid little attention to supporting growth.

Developing local alternatives to foreign goods will take time, and may never replace everything that the international economy used to supply.

Maria Kozlova, a 33-year-old human resources worker in St. Petersburg, said that she has replaced some of the foreign products like a face cream with cheaper Russian alternatives. But she paid double online for Italian pet food that doesn’t trigger allergies for her cat.

“We bought the largest package,” she said. “You can replace everything else” but not the cat food, she added.

Write to Paul Hannon at and Yuliya Chernova at

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