Russia's Surprise 1.5% Interest Rate Cut Takes Russian Rates Below Pre-War Levels

The Central Bank of Russia took economists by surprise on Friday by cutting its key interest rate by 1.5%.

What Happened? Russia issued its fifth rate cut of the year on Friday, lowering its rate by 1.5% to 8%. Economists had expected just a 0.5% rate cut.

Related Link: Why A 1% July Interest Rate Hike May Be Off The Table

Why It's Important: The 8% level is meaningful because Russian rates have now dropped below the 9.5% level they were at prior to Russia's emergency rate hike from 9.5% to 20% in February when the Ukraine invasion began.

While the U.S. struggles with inflation at multi-decade highs, the Central Bank of Russia said subdued consumer demand is helping alleviate its inflation.

"Current consumer price growth rates remain low, contributing to a further slowdown in annual inflation," the bank said in a statement.

Related Link: The Market Is Now Pricing In a 1% July Interest Rate Hike Following Red-Hot CPI Inflation Reading

The Russian rate cut comes the same week CIA Director William Burns downplayed reports Russian President Vladimir Putin could be ill, saying Putin is “entirely too healthy.”

Russian interest rates are falling while the U.S. Federal Reserve is issuing its most aggressive rate hikes in nearly 30 years to stave off inflation. The Fed is expected to raise U.S. rates by at least 0.75% to a range of between 2.25% and 2.5% at its July meeting next week.

Benzinga Take: Rising interest rates have weighed on U.S. stocks so far in 2022, but U.S. investors aren't experiencing anything close to the pain the Ukraine war and punitive global sanctions have inflicted on the Russian market this year. The SPDR S&P 500 ETF Trust SPY is down 16.1% in 2022, but the MOEX Russia Index is down 45.7% in 2022.