Moscow, Russia: Russia’s central bank cut its key interest rate by 300 basis points for the third time since an emergency rate hike in late February, citing cooling inflation and a recovering ruble.
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Russia’s central bank unexpectedly kept its key interest rate unchanged at 21% on Friday, citing improved monetary tightening conditions, creating conditions for curbing high inflation.
“Monetary conditions have tightened more sharply than expected at the October key rate decision,” the bank said. explainpointing out the “autonomous” factor in monetary policy.
“Given the significant increase in borrower interest rates and cooling of credit activity, the tightening of monetary conditions creates the necessary prerequisites to resume the deflationary process and bring inflation back to target, despite currently higher price growth and higher domestic demand,” it added.
The central bank is widely expected to raise interest rates by 200 basis points on Friday, following a move in October as Russia struggled to contain the military costs of Moscow’s invasion of Ukraine and Western sanctions on its key commodities. Inflation.
The bank said on Friday it would assess the need for a key rate hike at its upcoming February meeting. Annual inflation is currently forecast to fall to 4% in 2026 and remain at that target going forward.
Russia’s consumer price index is now more than double that level – with annual inflation at 9.5% as of December 16, the bank said on Friday, noting persistent pressures, particularly in the household and business sectors. . The consumer price index rose 8.9% year-on-year in November, up from 8.5% in October. The growth has been driven largely by rising food prices, with the cost of milk and dairy products soaring this year.
Inflation is a ‘warning sign’
Rates remained unchanged even as Russian President Vladimir Putin admitted on Thursday at his annual question-and-answer session with Russian citizens. The country has problems with inflation and there is evidence that the economy is overheating. However, he emphasized that Russia can still achieve economic growth of 3.9%-4% this year.
“Of course, inflation is an alarming sign. Just yesterday, as I was preparing for today’s event, I spoke to the President of the Central Bank, Elvira (Nabiullina), and he told me that the inflation rate is already at 9.3 % or so. comments, he said.
The International Monetary Fund predicts that Russia’s economic growth rate will reach 3.6% this year, and the growth rate will slow down to 1.3% in 2025.
The International Monetary Fund said it expected a “sharp slowdown” in the economy “due to easing labor market tightness and slower wage growth, slowing private consumption and investment.”
“What we are seeing in the Russian economy right now is that it is pushing for capacity constraints,” said Alfred Kamer, director of the International Monetary Fund’s European Department. The fund said in releasing its latest economic outlook October.
“So we have a positive output gap, or you can put it another way – the Russian economy is overheating. Our expectations for next year are just beyond supply capacity, and you can’t sustain that for very long. So we see there The impact of moving into more normal territory, of course, is supported by the tightening monetary policy of the Russian Central Bank.
“Tighter monetary policy to reduce inflation will slow aggregate demand and will have these effects on GDP in 2025. That’s why we see a slowdown in 2025,” Kammer added.
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