Cbank again predictably retains key rate at 7.5% annually

MOSCOW, Dec 16 (PRIME) -- The board of directors of Russia’s central bank has retained the key rate at 7.5% annually thanks to moderate inflation and restrained consumer demand, the regulator said in a statement on Friday.

“The inflationary expectations of Russian businesses and individuals have not changed significantly, and persist at a high level. Proinflationary risks have increased and are prevailing… It is linked to proinflationary pressure of the labor market, worsening international trade conditions and a softer budget policy,” the central bank said.

INFLATION

In November, Russia’s annual inflation amounted to 12% after 12.6% seen in October, the central bank said. As of Monday, the annual inflation increased to 12.7% considering the shift of the utility services tariffs adjustment from July 2023.

The overall inflationary pressure is moderate, but Russians’ inflationary expectations are still high. Professional analysts’ inflationary expectations are anchored near the level of 4% in the medium term.

The regulator projects inflation at the level of 5–7% in 2023 and at the target level of 4% in 2024.

MONETARY CONDITIONS

The central bank said that Russia’s monetary conditions are generally neutral. The yields of OFZ government bonds have not changed considerably since the end of October.

Lending activity is high, especially in the corporate sector. According to the regulator’s operating data, retail lending has also expanded since a slowdown seen in October mainly thanks to stabilization of consumer sentiments.

The central bank said that the inflow of deposits to banks has increased after a rise of deposit interest rates in September, but Russians still tend to demonstrate careful consumer behavior.

ECONOMIC ACTIVITY

The authority said that the external conditions remain difficult for the Russian economy and restrict the economic activity, but operating indicators show a rise in the business activity in October–December.

Expansion of local production is restrained by the state of the labor market, it added. The level of unemployment has hit a record high, which leads to growth of real wages.

The central bank said that consumer demand is restrained. Investment in the private sector decreases, and state investment continues to grow. The government’s plans to soften the budget policy can support Russia’s economic activity in 2023.

The slowdown of the global economy can undermine external demand for Russia’s exports and also have proinflationary risks through weakening of the ruble.

The key rate will be revised at the next meeting of the central bank’s board of directors scheduled for February 10, 2023.

(64.3015 rubles – U.S. $1)

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