Cbank keeps key rate at 7.5%, signal for further action neutral

MOSCOW, Oct 28 (PRIME) -- The central bank kept the key rate at 7.5% annually on Friday and repeated a neutral signal for further actions.

"The current consumer price growth rate remains low in general, favoring further deceleration of annual inflation. Inflationary expectations of the population and business remain elevated and have somewhat increased compared with the summer months.

"The central bank will make further key rate decisions based on the real and expected inflation movement towards its target, economic restructuring, assessing the risks from internal and external conditions and reaction of the financial markets."

The bank estimated inflation at 13.7% in September after 14.3% in August and at 12.9% on October 21. Annual inflation is to fall to 5–7% in 2023 and to 4% in 2024.

Monthly seasonally adjusted inflation accelerated in September due to a one-time rise of tariffs on the insurance and mobile communications markets. Without the one-time factors, an increase was also registered, albeit a small one.

The economic activities dynamics was better than central bank's estimates done in July–September, as an increasing number of companies adapted to the new restrictions. The labor market saw increasing limitations due to partial mobilization, which causes a disinflationary effect in the short term but is pro-inflationary in the long run because of a decline in output.

The central bank expects the gross domestic product (GDP) to fall by 3.0–3.5% in 2022, by 4–1% in 2023 with a starting growth in July–December in its basic scenario. In 2024 and 2025, the economy will rise 1.5–2.5% per year.

The monetary and credit conditions remained neutral in the reporting period but toughened to some extent due to an increase of geopolitical tension.

The OFZ federal bond yields grew, the loan interest rates stopped decreasing, the non-price bank lending terms toughened.

At the same time, banks raised their deposit rates to stop a cash outflow. Lending increased at a high rate.

Pro-inflationary and disinflationary risks are balanced in the short term, but pro-inflationary risks prevail in a longer perspective, rising since mid-September.

End