Russia’s Economy Will Crash This Year, Despite Continuous Interest Rates Cuts

alina-grubnyak Via Unsplash
alina-grubnyak Via Unsplash

The Central Bank of Russia cut interest rates on Friday for the 2nd time this month as the ruble continues to gain momentum, but warned the economy will crash this year.

The cut hauled rates to 14% from 17%, following an April 8 reduction from 20%. After Russia initiated its war on Ukraine in February, the CBR hiked interest rates to 20% from 9.5% in an emergency effort to aid the declining ruble.

On Friday, the CBR said the ruble has rebounded strongly to pre-war levels. Russia has strengthened the currency through rigorous capital controls that pushed the ruble to become one of the top-performing currencies across the globe.

The ruble was down 2% on Friday, but at 72 rubles equaling one US dollar, the exchange rate still tops the rate of 80 to the dollar just before the invasion of Ukraine. At its low in early March, the ruble had traded at 120 to the dollar.

Meanwhile, the Kremlin is hoping to focus its efforts on the economy to halt the damage coming from (Western sanctions.

The CBR forecast the Russian economy will dwindle by 8% to 10% in 2022 and noted it’s preparing for potentially worsening restrictions from global powers as the war in Ukraine continue.