Central bank Gov. Elvira Nabiullina said the economic recovery will take longer than previously expected.
Photo: Stanislav Krasilnikov/Zuma PressMOSCOW—Russia’s central bank slashed its benchmark interest rate to a post-Soviet low as the economy enters a deep recession fueled by the fall in oil prices and the coronavirus pandemic.
The bank lowered its key rate by 1 percentage point to 4.5%, following a 0.5 percentage point cut in April. The bank said it could trim the rate further in the future, depending on how the economic situation develops.
Friday’s rate cut is intended to make bank lending cheaper and alleviate the economic pain that has penetrated all sectors of industry, increased unemployment and lowered incomes.
The downturn has put pressure on President Vladimir Putin, who has called a referendum later this month on constitutional changes that would allow him to stay in power until 2036. On Monday, Mr. Putin asked the government to boost its stimulus measures after statistical data signaled that a deep contraction and a slow recovery is in store for the Russian economy.
Russia has recorded more than half a million Covid-19 infections, the third-highest tally in the world after the U.S. and Brazil. The official death toll stands at 7,841.
Elvira Nabiullina, Russia’s central bank chief, said the economic recovery will take longer than previously expected. “A full return to gross domestic product levels from 2019 is likely to occur only in the first half of 2022,” she said at a briefing.
The bank said it expects Russia’s gross domestic product to decrease by 4% to 6% this year. The International Monetary Fund forecasts a 5.5% drop, the steepest decline since 2009.
Data from individual economic sectors paint a picture of a deep and prolonged downturn. Business activity in the services and manufacturing sectors has dropped significantly and investment has declined. Industrial production fell 9.6% in May compared with the same month last year, deepening a slump of 6.6% in April.
Sales of new cars tumbled by 72.4% in April, the steepest fall on record, in what the Moscow-based Association of European Businesses called “Black April.” Only seven Ford cars were sold that month, an almost 100% decline compared with the same month last year when dealers sold 2,889, according to the association.
Inflation, meanwhile, has been muted, the central bank said.
Unemployment has risen to 6.1% in May, up from 4.7% in March, while real incomes have shrunk, following six years of stagnating incomes. A third of respondents to an opinion poll by the independent Levada Center reported a fall in wages for themselves or their family members at the end of April.
“We believe the recovery of internal demand to precrisis levels will be very gradual and may take at least two years,” Grigory Zhirnov, an analyst at Nordea Bank in Moscow, wrote in a note to clients. “Consequently, the [central bank] policy needs to be accommodative to speed up the recovery.”
While the phased lifting of restrictions between May and June has helped consumption-oriented sectors, recent business surveys reflect continuing cautious sentiment, Russia’s central bank said.
The Russian government has already announced breaks on consumer loans and mortgage payments, along with financial support for businesses and low-income households, to help weather the crisis.
Mr. Putin asked authorities this week to further boost these initiatives.
New measures “will be necessary because there is still a difficult stage ahead of the restoration of the economy, the labor market, the usual rhythm of life,” Mr. Putin said Monday.
Write to Georgi Kantchev at georgi.kantchev@wsj.com
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