Russia Central Bank Holds Rate Steady, Leaves Door Open For Future Hikes

The Bank of Russia left its key interest rate unchanged for the fifth policy session in a row on Friday, but did not rule out the possibility of a rate hike in future as inflation is rising gradually.

The Board of Directors, led by Governor Elvira Nabiullina, left the key rate unchanged at 7.50 percent, as expected.

Policymakers assessed that the recent acceleration in price growth has been modest and inflation expectations have eased, though they remain elevated.

The economy is growing faster than the bank forecast in February, thanks to the improvement in domestic demand and economic reform, the bank said.

However, an increase in fiscal spending, worsening term of foreign trade and the labor market situation continue to pose pro-inflation risks, the central bank added.

“Moving forward, in its key rate decision-making, the Bank of Russia will take into account actual and expected inflation dynamics relative to the target and economic transformation processes, as well as the risks posed by domestic and external conditions and the reaction of financial markets,” the bank said.

“Given gradually rising inflationary pressures, the Bank of Russia’s forthcoming Board meetings will consider the necessity of key rate increase to stabilise inflation close to 4 percent in 2024 and further on.”

With the monetary policy stance, annual inflation will come in at 4.5-6.5 percent in 2023 to return to 4 percent in 2024, the central bank forecast.

Considering the time-lagged effects of monetary policy, future decisions on the key rate will influence increasingly more the inflation rate of the next year already when inflation should return to the target of 4 percent and stabilize at this level, Governor Nabiullina said in her statement.

The central bank expects the Russian economy to recover during the rest of the year.

“ the economy recovers to the pre-crisis growth path, excessive demand stimulation amid insufficient supply might speed up price growth next year as well,” Nabiullina said.

The next rate-setting session is scheduled for June 9.

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