Cbank keeps key rate at 7.5%, doesn’t soften position on policy

MOSCOW, Mar 17 (PRIME) -- Russia’s central bank has kept the key rate at 7.5% annually, and said that the rate could be increased in the future if pro-inflationary risks rise, the authority said in a statement on Friday following a meeting of the board of directors.

“Current rates of price growth remain moderate, including in the stable components of inflation. Inflation expectations of households are down significantly but remain elevated, as do businesses’ price expectations. High-frequency data suggest that a recovery in business and consumer activity is ongoing,” the central bank said.

The central bank assessed inflation in February at 11% after 11.8% in January. The average current price increase rate has been near 4% on the year since the start of 2023 and exceed the average figure for October–December 2022. At the same time, the current price rise slowed down in February as compared with January.

The weakening of the ruble from the level of the end of 2022 has affected the price dynamics slightly, the price growth remained moderate in its stable components.

Inflation will likely dive below 4% in several next months due to a high base effect of the period in 2022. The inflationary pressure will be gradually rising from moderately low levels. The estimate for inflation in 2023 stands at 5–7% and at 4% in 2024 remaining near the level later.

The gross domestic product (GDP) decreased 2.1% in 2022, which was better dynamics than the central bank expected in February. The economic activity continued recovering, according to the latest data. An increase in domestic demand favored an improvement of business moods in spite of a certain deterioration of the external conditions.

Consumer demand remained subdued, albeit recovering. Private investment demand growth stalled, while state investments increased.

The balance of risks in the medium term remains pro-inflationary because of geopolitical uncertainty that may weaken exports and affect the ruble exchange rate. Production limits and an import price rise may occur. A deficit on the labor market in some industries and high inflation expectations can also contribute to higher inflation. Instability on the financial markets of the developed states may undermine the prospects of growth of the global economy.

The central bank assessed its monetary policy as neutral.

End