Central bank predictably raises key rate to 9.5% annually

MOSCOW, Feb 11 (PRIME) -- Russia’s central bank has raised the key rate by 100 basis points to 9.5% annually, the regulator said in a statement on Friday.

The central bank said that Russia’s inflation has significantly exceeded the October 2021 forecast. Annual inflation growth accelerated to 8.7% in January after some slow-down to 8.4% in December 2021, and amounted to 8.8% as of February 4.

The dynamics mirrors the fact that stable internal demand is larger than production options in many industries, while output expansion is restricted by the lack of labor force, the regulator added. High and unanchored inflationary expectations of the households and the businesses have also impacted the inflation figures. In January, inflationary expectations declined, but were still near their 6-year highs.

The pro-inflation factors has resulted in a significant and lengthy upward deviation of inflation from the target. According to the central bank’s forecast, the current monetary policy will force annual inflation down to 5–6% annually in 2022, and to return to the 4% target by the middle of 2023.

According to the central bank, the monetary conditions have turned to neutral from soft. Growth of real inflation and high inflationary expectations prevent the conditions from entering the tough range.

The yields of short-term OFZ government bonds have increased since the regulator’s previous meeting to reflect the market’s key rate expectations, and the yields of medium- and long-term OFZ bonds have grown mainly due to rising geopolitical tensions, the central bank said.

Deposit and credit rates continue to increase, but the dynamics has not yet resulted in more balanced lending. Both the retail and the corporate lending markets are highly active, the regulator said, adding that the current monetary policy will balance the lending market and protect the purchasing power of the deposits.

According to the central bank’s revised forecast, Russia’s gross domestic product (GDP) growth will amount to 2–3% in 2022, to 1.5–2.5% in 2023, and to 2-3% in 2024, which means that Russia’s economy will return to sound growth by the end of 2023 and will then develop at its potential.

If the situation evolves in line with the central bank’s basic scenario, it can further increase the key rate at the next meetings of its board of directors. The next meeting is scheduled for March 18.

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