The Board of Directors of the Central Bank reduced the key rate from 5.5 to 4.5% and announced the possibility of further reduction. The existing rate is the lowest in the history of this instrument and its sharp reduction proves the switch of the Bank of Russia towards soft monetary policy.
The decision to reduce the key rate can be explained by the intention of the regulator to support the economy in the absence of inflation pressure.  This measure is focused not so much on the short-term effect, but rather on supporting economic recovery after the shock associated with restrictive measures and deteriorated terms of trade. Currently, Russia is experiencing a severe decline in economic activity. This is evidenced by a sharp increase in unemployment and a drop in output. The latest estimates by Rosstat show that unemployment increased to 6.1% in May, while in February it was 4.6%. During this period, more than a million people lost their jobs. The Ministry of Economic Development estimates the decline in GDP in January-May at 3.7%, and at month- end of May, GDP fell by 10.9% compared to May of the previous year.
The current crisis is characterized by the absence of a pronounced inflationary shock and a moderate Ruble devaluation. According to Rosstat estimates, annual inflation in May did not change compared to the same indicator for April and amounted to 3.1%. Annual inflation in March amounted to 2.5%, i.e. we observe a rather soft price shock, and even taking into account this shock, inflation remains below the target level of 4%. The Bank of Russia does not record the growth of inflation expectations, which indicates maintaining credibility in the national currency even in times of crisis.
High inflation and loss of stability of the national currency exchange rate often act as constraints for stimulating monetary policy in emerging market countries, including Russia. The fact that currently disinflation factors prevail in the Russian economy while inflation expectations remain stable, allows the Bank of Russia to provide a more intensive support for economic activity required in the current macroeconomic situation.

Evgeny Goryunov, Researcher, International Laboratory for Mathematical Modelling of Economic Processes.