Russia risks facing increased inflation pressure if its oil exports drop significantly due to the European embargo over the Ukraine war, the country's Central bank chief warned on Friday.

The Russian Central Bank cut its key interest rate by 150 basis points on Friday to 9.5% in June, bringing borrowing costs back to pre-war levels.

Following the rate decision, Central Bank Governor Elvira Nabiullina delivered remarks on the Russian economy at the meeting she held in Moscow.

Pointing out that it was too early for optimism on inflation in Russia, she said the "very low price growth rates we have been observing in recent weeks cannot be considered to be steadily low inflation."

Pro-inflationary risks are still strong, she added, underlining that external conditions involved a whole range of them.

"If Russian oil exports plummet, this will provoke pro-inflationary pressure due to a contraction of the balance of trade and a weaker ruble," she said.

"A lot will depend on how much oil the country will be able to redirect to other markets, as well as the extent to which the slump in oil exports will be offset by the price."

This, in turn, will depend on the elimination of infrastructure and logistics problems and oil demand in new target markets, explained the official.

Nabiullina also warned of mounting global recession risks. "If they materialize, the global demand for Russian exports will decrease, which will accelerate inflation through a weaker ruble."

"A contraction of Russian exports might also involve disinflationary risks if companies are forced to redirect their products to the domestic market because of the impossibility to establish export chains."

The annual inflation rate in Russia fell to 17.1% in May 2022, below market expectations of 17.3%.

US Dollar traded against the Russian Ruble at 57.8350, up 2.5850 or 4.68%, since the previous trading session./aa