MOSCOW, Russia: Russia’s central bank cut its key interest rate by 300 basis points, the third time since an emergency rate hike in late February, citing cooling inflation and a rebound in the ruble.
Kirill Kudryavtsev | AFP | Getty Images
Russia’s central bank unexpectedly left its key interest rate unchanged at 21% on Friday, saying improved monetary tightening created conditions to curb ultra-high inflation.
“Financial conditions have tightened significantly more than expected in October’s key interest rate decision,” the central bank said, pointing to factors “independent” of monetary policy.
“Given the marked rise in borrower interest rates and the cooling in credit activity, the achieved tightening of financial conditions, despite current price increases and high domestic demand, will restart the deflation process and keep inflation on target. “We will create the necessary preconditions for the return.”
Markets had widely expected the central bank to raise interest rates by another 200 basis points on Friday, the same as it did in October as it continues efforts to rein in inflation triggered by Western sanctions on military costs and key goods stemming from Moscow’s invasion of Ukraine. This was after taking measures. export.
The central bank announced on Friday that it will assess the need for a key rate hike at its next meeting in February. We currently expect annual inflation to fall to 4% in 2026 and maintain this target going forward.
Russia’s consumer price index is currently more than double this rate, with annual inflation reaching 9.5% as of December 16, the central bank said on Friday, adding that the country’s consumer price index is currently more than double this rate, with the annual inflation rate reaching 9.5% as of December 16. pointed out the pressure. The consumer price index in November was an annualized 8.9%, up from 8.5% in October. This increase is mainly due to higher food prices, with milk and dairy products prices rising this year.
Inflation is a “warning signal”
Interest rates remain unchanged even as Russian President Vladimir Putin acknowledged in his annual question-and-answer session with Russians on Thursday that there is a problem with domestic inflation and evidence of an overheating economy. However, he stressed that Russia still has the potential to achieve economic growth of 3.9-4% this year.
“Inflation, of course, is a very worrying signal. Just yesterday, when I was preparing for today’s event, I spoke to the Central Bank Chairman Elvira (Nabiullina) and she said that the inflation rate is already around 9.3%. However, according to comments reported by Interfax and translated by Google, he said:
The International Monetary Fund predicts that Russia will record 3.6% growth this year, slowing to 1.3% in 2025.
The IMF stated that the “sharp economic slowdown” is expected to result from “a slowdown in personal consumption and investment due to easing of labor market tensions and a slowdown in the rate of wage growth.”
“What we are seeing now in the Russian economy is that it is trying to counter capacity constraints,” Alfred Comer, the IMF’s European director, said when the fund released its latest economic outlook in October. ” he said.
“That means we have a positive demand-supply gap, or to put it another way, the Russian economy is overheating. “So we are supported by, and of course, the tight monetary policy by the Central Bank of Russia.”
“Tight monetary policy to control inflation will slow aggregate demand and will have this impact on GDP in 2025. That’s why we’ll see a slowdown in 2025,” Comer added.
