MOSCOW, June 10. /TASS/. The Board of Directors of the Bank of Russia decided to lower the key rate by 1.5 percentage points (pp) to 9.5% per annum at a meeting on June 10, the regulator said in a statement.

"On 10 June 2022, the Bank of Russia Board of Directors decided to cut the key rate by 150 basis points to 9.50% per annum. The external environment for the Russian economy remains challenging and significantly constrains economic activity. At the same time, inflation is slowing faster and the decline in economic activity is of a smaller magnitude than the Bank of Russia expected in April," the statement said.

The regulator will also assess the feasibility of reducing the key rate further at the next meetings - the Bank of Russia lowered its key rate forecast in the coming years. Thus, in 2022, the Bank of Russia forecasts an average key rate within 10.8 - 11.4% instead of the previously forecasted 12.5-14.01%, 7-9% in 2023 instead of 9-11%, and 6-7% in 2024 instead of 6-8%.

At the same time, the bank of Russia noted that changes in the economy and inflation largely depend on fiscal policy decisions. "The Bank of Russia takes into account the decisions already made regarding the mid-term expenditure path of the federal budget and the fiscal system as a whole. In case of a further budget deficit expansion, tighter monetary policy may be required to return inflation to target in 2024 and keep it close to 4% further on," the statement said.

Macroeconomic forecasts

The Bank of Russia believes that the decline in Russia's GDP in 2022 may be less than the level predicted by the regulator in April. "Overall, the actual decrease in economic activity in 2022 Q2 is less pronounced than the Bank of Russia assumed in its April baseline scenario. Given the above, the Bank of Russia estimates that the 2022 GDP decline could be lower than forecast in April," the statement said.

In the April forecast, the regulator expected the Russian economy to decline by 8-10% in 2022, by 3-0% in 2023, and to grow by 2.5-3.5% in 2024.

The Bank of Russia lowered its inflation forecast for 2022 to 14-17% from 18-23% and kept the forecast for 2023 and 2024. "The Bank of Russia’s baseline scenario expects annual inflation to run at 14.0-17.0% by the end of 2022. Inflation movements will be shaped including by such impactful factors as the efficiency of import substitution processes and the scale and speed at which imports of finished goods, raw materials and components will be recovering. According to the Bank of Russia’s forecast, given the current monetary policy stance, annual inflation will reduce to 5.0-7.0% in 2023 to return to 4% in 2024," the statement said.

The regulator noted that current inflation level is below the Bank of Russia’s April forecast - as of June 3, annual inflation fell to 17.0% against 17.8% in April.

Meanwhile, the regulator noted that the external environment remains challenging for the Russian economy and significantly constrains economic activity. "The contraction in imports due to the introduction of external trade and financial restrictions is considerably outstripping the decline in exports," the statement said.

The next meeting of the Bank of Russia Board of Directors will be held on July 22, 2022.