Slashing Key Rate to a Three-Year Low: What's the Real Story?
Economist Polidi from Kuban discusses lowering of key interest rate
On June 6, the Central Bank stunned the financial world by slashing its key rate to 20% - but is this fact or fiction? Let's delve into the economic tea leaves for some clarity.
Dr. Alexander Polidi, a renowned economics professor, shared his insights on the matter. According to Polidi, there's a 50-50 chance that the Central Bank could maintain the current rate or lower it further. "This rate reduction suggests the Central Bank is embarking on a course of monetary policy easing, as inflation isn't responding to the high key rate," he explains.
It's not all sunshine and roses in the marketplace, however. There are clear signs of cooling business activity, with some sectors experiencing a slowdown. This is evident in the reduction of long-term orders for machine-building, agricultural machinery, and equipment manufacturing, as well as a dip in consumer demand.
So, what does the future hold? "We can expect the Central Bank to keep the easy money flowing for at least a year, if not three," Polidi predicts. But don't worry - Polidi doesn't expect this to trigger a massive economic downturn.
You might be thinking, "Hold up, Central Banks don't just slash interest rates without rhyme or reason." Well, it's worth noting that the Central Bank's actions might be influenced by global monetary policy movements.
For instance, the European Central Bank (ECB) recently lowered its key interest rates by 25 basis points, not 100 as mentioned in the initial report. This decision was based on a reevaluation of the inflationary outlook and the dynamics of underlying inflation. Some sectors in Europe have even seen a slight decrease in inflation rates, thanks to lower energy prices and a stronger euro.
Conversely, the Federal Reserve - the central banking system of the United States - has opted to remain cautious, keeping its target range for the federal funds rate at 4.25% to 4.50%. The Fed is currently treading a fine line, as it tries to balance economic growth, unemployment levels, and inflation rates.
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Financing businesses could potentially benefit from the Central Bank's decision to reduce interest rates, as a lower key rate can make borrowing less expensive. However, the economic implications of this rate cut might be echoed in the global finance market, given the European Central Bank's recent move to lower its own key interest rates.
