The growth of national definition monetary supply (M2) continued slowing down, amounting to 8.3% y/y in April, according to the data by the Central Bank of Russia (CBR). Last time single-digit y/y growth of the indicator was posted in November 2009. In m/m terms M2 inched up by 1.2% m/m (after declining by 2.2% m/m in March). To compare, in April 2013 M2 growth stood at 15.2% y/y, in April 2012 at 20.5% y/y and in April 2011 at 22% y/y.

In absolute terms, M2 amounted to RUB 30.16tn (USD 869bn), cash in circulation was RUB 6.78tn, and non-cash funds were at RUB 23.4tn as of end of April. In y/y terms the indicators’ growth slowed down from 6.9% y/y and 9% y/y in March to 6.7% y/y and 8.8% y/y in April, respectively.

The CBR throughout 2013 came back to a tougher monetary stance and inflation targeting, after signalling a possible beginning of a government-pushed softer policy cycle. This tight monetary course reiterated in the beginning of 2014 and strengthened by increased geopolitical inflationary pressures in spring 2014.

In the end of April, the CBR increased the key interest rate by 0.5ppt to 7.5% due to increased inflationary risks. The key interest rate was prior to that “temporarily” increased from 5.5% to 7% in the beginning of April, when RUB dropped on the news of Russia authorising military involvement in Ukraine.

Russia’s EconMin Alexei Ulyukaev recently argued that the CBR increasing the key interest rate twice to 7.5% is going to have a negative effect on economic dynamics in Russia in 2014. EconMin hopes that the rate will be cut back at the next CBR’s BoD meeting on June 16.