Central bank raises key rate by 1pp, mildens signal for further steps

MOSCOW, Dec 17 (PRIME) -- The board of directors of the central bank has raised the key rate by 1 percentage point to 8.5% annually but said in a statement on Friday that it ‘does not rule out a further increase.'

"If the situation unfolds in accordance with the basic forecast, the Central Bank of Russia does not rule out a further increase of the key rate at the next meetings," the authority said.

According to the central bank, inflation overshoot its October forecast with the contribution of stable factors remaining significant due to a faster expansion of demand as compared with output.

In October–November, the monthly seasonally adjusted consumer price rise was the highest in six years. Annual inflation rose to 8.4% from 7.4% in September. Inflation amounted to 8.1% as of Monday.

The figures reflecting the most stable price dynamics processes remained significantly higher than 4% on the year. The effect of one-time pro-inflation factors on the supply side was priced in in a wide range of goods due to high and unanchored inflation expectations of the population and business. Price expectations of companies remained near many-year maximums.

In the basic scenario, annual inflation will fall to 4.0–4.5% by the end of 2022 and will remain near 4% after that.

The monetary and credit policies of the central bank have become tougher since the last meeting of the board, but are still assessed as neutral.

Economic activity is growing in a wide range of industries, but supply is insufficient in several sectors. The new strains of the coronavirus can limit business activity even further. The central bank's estimate of the gross domestic product (GDP) rise in 2021 amounts to about 4.5%.

The next meeting of the central bank's board is scheduled for February 11, 2022.

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