The growth of national definition monetary supply (M2) continued slowing down, amounting to 7.7% y/y in May, according to the data by the Central Bank of Russia (CBR). Since March monetary base growth is at single-digit values, last time single-digit y/y growth of the indicator was posted in November 2009. In m/m terms, M2 inched up by 0.3% m/m (after declining by 1.2% m/m in April). To compare, in May 2013, M2 growth stood at 15.3% y/y, in May 2012 at 20.6% y/y and in May 2011 at 20.1% y/y.

In absolute terms, M2 amounted to RUB 30.25tn (USD 870bn), cash in circulation was RUB 6.76tn, and non-cash funds were at RUB 23.5tn as of end of May. In y/y terms the indicators’ growth slowed down from 6.7% y/y and 8.8% y/y in April to 6.5% y/y and 8% y/y in May, 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 May, the CBR increased the key interest rate by 0.5ppt to 7.5% due to increased inflationary risks, and then kept the interest rate unchanged in June. The key interest rate was prior to that “temporarily” increased from 5.5% to 7% in the beginning of May, when RUB dropped on the news of Russia authorising military involvement in Ukraine.