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Russian central bank surprises markets by holding key rate at 21%

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MOSCOW, Russia: The Russian central bank has cut its key interest rate by 300 basis points for a third time since its emergency hike in late February, citing cooling inflation and a recovery in the ruble.

KIRILL Kudryavtsev | AFP | Getty Images

Russia’s central bank on Friday unexpectedly left its key interest rates unchanged at 21%, citing improved monetary tightness that had created the conditions to tame sky-high inflation.

“Monetary conditions tightened more significantly than envisaged by the October key rate decision,” the bank said, noting factors “autonomous” from its monetary policy.

“Given the notable increase in interest rates for borrowers and the cooling of credit activity, the achieved tightness of monetary conditions creates the necessary prerequisites for resuming disinflation processes and returning inflation to the target, despite the elevated current price growth and high domestic demand,” it added.

Markets had widely expected the central bank to hike interest rates by another 200 basis on Friday, after taking such a step in October amid an ongoing effort to subdue inflation stoked by the military costs of Moscow’s invasion of Ukraine and by Western sanctions against its key commodity exports.

The bank on Friday said it would assess the need for a key rate increase at its upcoming meeting in February. It currently forecasts annual inflation will decline to 4% in 2026 and remain at this target in the forward horizon.

Russia’s consumer price index is currently more than twice this rate — annual inflation hit 9.5% as of Dec. 16, the bank said Friday, noting persisting pressures, especially in the household and business sectors. The consumer price index hit 8.9% in November on an annual basis, up from 8.5% in October. The increase was largely driven by rising food prices, with the cost of milk and dairy products soaring this year.

Inflation an ‘alarming signal’

The hold to interest rates comes even after Russian President Vladimir Putin admitted during his Thursday annual Q&A session with Russian citizens that the nation’s inflation was problematic and that there was evidence of the economy overheating. He nevertheless stressed that Russia could still achieve 3.9%-4% of economic growth this year.

“Of course, inflation is such an alarming signal. Just yesterday, when I was preparing for today’s event, I spoke with the chairperson of the Central Bank, Elvira [Nabiullina] who told me that it was already somewhere around 9.3%. But wages have grown by 9% in real terms, I want to emphasize this — in real terms minus inflation — and the disposable income of the population has also grown,” he said, according to comments reported by Interfax and translated by Google.

The International Monetary Fund predicts Russia will notch 3.6% growth this year, before a deceleration to 1.3% growth in 2025.

The “sharp slowdown,” the IMF said, was envisaged “as private consumption and investment slow amid reduced tightness in the labor market and slower wage growth.”

“What we are seeing right now in the Russian economy, [is] that it is pushing against capacity constraint,” Alfred Kammer, director of the European Department at the IMF, said when the fund released its latest economic outlook in October.

“So we have a positive output gap, or you could put it differently — the Russian economy is overheating. What we are expecting for next year is simply also the impact that going over your supply capacity, you cannot maintain for very long. So we see an impact on moving into more normal territory there. And of course, that is supported by a tight monetary policy by the Central Bank of Russia,” he said.

“A tight monetary policy, in order to bring down inflation, slows down aggregate demand, and in 2025 will have these effects on GDP. That’s why we are seeing the slowdown in 2025,” Kammer added.

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Who decides what legal terms mean? If it is Donald Trump, God help America

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Inflation rate slipped to 2.1% in April, lower than expected, Fed’s preferred gauge shows

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Inflation rate slipped to 2.1% in April, lower than expected, Fed’s preferred gauge shows

Inflation barely budged in April as tariffs President Donald Trump implemented in the early part of the month had yet to show up in consumer prices, the Commerce Department reported Friday.

The personal consumption expenditures price index, the Federal Reserve’s key inflation measure, increased just 0.1% for the month, putting the annual inflation rate at 2.1%. The monthly reading was in line with the Dow Jones consensus forecast while the annual level was 0.1 percentage point lower.

Excluding food and energy, the core reading that tends to get even greater focus from Fed policymakers showed readings of 0.1% and 2.5%, against respective estimates of 0.1% and 2.6%.

Consumer spending, though, slowed sharply for the month, posting just a 0.2% increase, in line with the consensus but slower than the 0.7% rate in March. A more cautious consumer mood also was reflected in the personal savings rate, which jumped to 4.9%, up from 0.6 percentage point in March to the highest level in nearly a year.

Personal income surged 0.8%, a slight increase from the prior month but well ahead of the forecast for 0.3%.

Markets showed little reaction to the news, with stock futures continuing to point lower and Treasury yields mixed.

People shop at a grocery store in Brooklyn on May 13, 2025 in New York City.

Spencer Platt | Getty Images

Trump has been pushing the Fed to lower its key interest rate as inflation has continued to gravitate back to the central bank’s 2% target. However, policymakers have been hesitant to move as they await the longer-term impacts of the president’s trade policy.

On Thursday, Trump and Fed Chair Jerome Powell held their first face-to-face meeting since the president started his second term. However, a Fed statement indicated the future path of monetary policy was not discussed and stressed that decisions would be made free of political considerations.

Trump slapped across-the-board 10% duties on all U.S. imports, part of an effort to even out a trading landscape in which the U.S. ran a record $140.5 billion deficit in March. In addition to the general tariffs, Trump launched selective reciprocal tariffs much higher than the 10% general charge.

Since then, though, Trump has backed off the more severe tariffs in favor of a 90-day negotiating period with the affected countries. Earlier this week, an international court struck down the tariffs, saying Trump exceeded his authority and didn’t prove that national security was threatened by the trade issues.

Then in the latest installment of the drama, an appeals court allowed a White House effort for a temporary stay of the order from the U.S. Court of International Trade.

Economists worry that tariffs could spark another round of inflation, though the historical record shows that their impact is often minimal.

At their policy meeting earlier this month, Fed officials also expressed worry about potential tariff inflation, particularly at a time when concerns are rising about the labor market. Higher prices and slower economic growth can yield stagflation, a phenomenon the U.S. hasn’t seen since the early 1980s.

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German inflation May 2025

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19 May 2025, Berlin: Apricots are sold at a greengrocer for 7.98 euros per kilogram. Grapes and papaya are also on offer.

Photo by Jens Kalaene/picture alliance via Getty Images

Germany’s annual inflation hit 2.1% in May approaching the European Central Bank’s 2% target but coming in slightly hotter than analyst estimates, preliminary data from statistics office Destatis showed Friday.

The print compares with a 2.2% reading in April and with a Reuters projection of 2%.

The print is harmonized across the euro zone for comparability.

So-called core inflation, which strips out more volatile food and energy prices, dipped slightly from April’s 2.8% to 2.9% in May. The closely watched services print meanwhile eased sharply, coming in at 3.4% compared to 3.9% in the previous month.

Energy prices fell markedly for the second month in a row, tumbling by 4.6% in May.

Germany’s consumer price index has been closing in on the European Central Bank’s 2% target over recent months, in a positive signal amid ongoing uncertainty about the economic outlook for Europe’s largest economy.

Domestic and global issues have mired expectations for Germany’s financial future.

One the one hand, U.S. President Donald Trump’s tariffs could damage economic growth, given Germany’s status as an export-reliant country, though the potential impact of such duties on inflation remains unclear. But frequent policy shifts and developments have been muddying the picture.

On the other hand, Germany’s newly minted government is starting to get to work and has made the economy a top priority. Questions linger about when and to what extent the new Berlin administration’s policy plans might be realized.

The ECB is set to make its next interest rate decision on June 5, with traders last pricing in an over 96% chance of a quarter point interest rate reduction, according to LSEG data. Back in April, the central bank had cut its deposit facility rate by 25 basis points to 2.25%.

This is a breaking news story, please check back for updates.

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