Russia to slash rates by year-end as rouble recovers

pRussias exportdependent economy is plunging into recession after Moscow sent tens of thousands of troops into Ukraine on Feb. 24 in a move that triggered sweeping Western sanctions against Russia, including a partial freeze of its reserves.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pThe roubles crashed to record lows after Russia started what it calls “a special military operation” in Ukraine. But capital controls have helped the rouble fully recoup losses and even to firm versus the euro to levels last seen in early 2020.p

pThe average forecast among 18 analysts polled in late April suggested the rouble would trade at 83.50 against the dollar a year from now, compared with a rate of 97.50 predicted by analysts in late March. Fridays official rate was at 72.30 roubles per dollar. [L5N2VY6QY]p

pWith capital controls in place, the rouble rate is determined by Russias strong current account surplus as its exports exceed imports, which suggests the rouble could continue firming, MKB Investments analysts said.p

pThat should help cap inflation, one of the key concerns among Russians, though it is still on track to post its highest reading since 1999, posing a clear threat to living standards.p

pIn 2022, inflation is expected to accelerate to 20.5 from 8.4 in 2021, the poll showed. In late March, analysts had on average predicted 2022 inflation at 23.7, far above Russia‘s 4 target and January’s poll results that foresaw this years inflation at 5.5.p

pMarket expectations change quickly in the current volatile and unpredictable environment, which is driven to a large extent by geopolitical factors.p

pThe central bank raised its key interest rate to 20 in late February in an emergency move, but earlier in April it trimmed it to 17. It is expected to lower rates again on Friday.p

pThe central bank has explicitly said it will consider cutting rates at upcoming meetings, which analysts interpreted as an indication that the key rate could fall to 10.5 by yearend, the latest poll showed. A month ago, the rate was seen ending this year at 16.p

pLower rates should make lending more affordable, which is crucial for an economy that is on track to shrink by 8.4 this year, the poll showed. A similar poll in early 2022 predicted economic growth of 2.5.p

pThe Russian economy ministry is less optimistic as it forecasts a 12.4 contraction in its conservative scenario, which would be the biggest decline in gross domestic product since 1994.p