Central bank raises key rate for 5th time, by 0.25 pp to 6.75%

MOSCOW, Sep 10 (PRIME) -- The board of directors of Russia’s central bank raised the key rate by 0.25 percentage points to 6.75% on Friday, which was a fifth increase in a row, according to a statement of the authority.

"The Russian economy reached the pre-pandemic level in the second quarter of 2021, and, according to estimates of the central bank, is returning to a trajectory of balanced growth. The contribution of stable factors to inflation remains significant amid a faster extension of demand, compared with the output opportunities growth," the central bank said, explaining the decision.

Inflation accelerated to 6.68% in August after 6.46% in July, and it reached 6.74% as of Monday. The figures reflecting the most stable processes contributing to inflation remained elevated. Higher demand allowed companies to raise prices in order to compensate for a rise in the input cost that happened in line with the global price increase.

The inflation expectations remained near the 4-year peak for more than six months. Price expectations of companies remained near many-year maximums.

The central bank expects that inflation will start to slow down in October–December, will return to 4.0–4.5% in 2022 and will remain near 4% after that.

The loan conditions toughened a little, as the short-term OFZ government bond yield increased, while medium and long-term OFZ yield remained on the same level. Deposit rates accelerated the growth. Outflow from ruble deposits stopped. Corporate lending increased at maximums for the last several years, consumer lending grew at a high pace, while mortgage increase slowed down.

Real-time indicators signaled that the economic activity continued to rise in July–September, albeit at a slower pace. The increase of economy was uneven among sectors and regions. The real wages increased, and the tendency to save was low on high inflation expectations, which is why consumption rose, most of all, on the food market. The recovery of services sector slowed down in July–August amid restrictions.

Short-term pro-inflation risks remained significant, as a possible abrupt reduction of support measures in developed economies can cause volatility.

The central bank did not rule out an increase in the key rate at next meetings of the board.

End