Just days before the start of her third term later this month, Nabiullina might feel vindicated because inflation has cooled off so much that Russia saw rare weekly declines in consumer prices.
The broader outlook is also turning more favorable, with some forecasters seeing a far more shallow recession this year than anticipated earlier. Higher rates have prompted more Russians to return money to banks after record withdrawals starting in February. But the central bank’s anti-crisis arsenal is less well suited for the risks ahead, from economic regression under sanctions to the threat of shortages as supplies of imported goods run dry. And with about half of Russia’s international reserves frozen by sanctions, policy makers are still unable to intervene in the market.
This week’s rate decision will go a long way toward showing just how much longer the central bank wants to rely on a strong rouble as a policy anchor, especially if it decides to complement monetary stimulus with an additional relaxation of capital controls. Although the Bank of Russia gradually began to roll back its financial defenses from April, some of the harshest measures remain, including a ban on sales of Russian securities by foreign investors.Inflation slowedJPMorgan Chase & Co.’s economists expect the rouble’s performance will largely dictate the pace and extent of the easing cycle. Rates may even need to go below a level deemed neutral – 6% to 8% – to revive consumer spending and balance out surging exports, they said.