Central bank raises key rate to 4.5% for 1st time since 2018

MOSCOW, Mar 19 (PRIME) -- The Russian central bank has raised the key rate to 4.5% annually for the first time since the end of 2018, according to a statement seen by PRIME on Friday.

"The consumer price increase in the first quarter exceeded the forecast of the Central Bank of Russia. Recovery of local demand has become stable and exceeds expectations. In some regions, it exceeds production growth,” the statement said.

“Expectations of foreign demand are improving on the back of additional measures of budget support in some states and a higher vaccination rate. Inflation expectations of the population and business remain elevated. The balance of risks changed to pro-inflation."  

Inflation amounted to 5.7% annually in February after 5.2% in January, and accelerated to 5.8% as of Monday. According to the central bank, people spend money saved from unavailability of foreign tours on the purchase of goods and services.

The consumer price growth will peak in March and then start to decline. Inflation is to return to 4% in January–June 2022.

The balance of risks has shifted to inflation because pro-inflation factors may persist for longer than expected amid consumer demand growth and restricted production capacities. Elevated inflation expectations can exacerbate the situation. Global market volatility is also creating short-term risks.

The credit and deposit rates in the banking system remained virtually unchanged, while the medium-term and long-term OFZ yield increased due to the  growth of interest rates on the global financial markets. But in some sectors, the capacity of raising production lags behind demand. The rates of vaccination and budget support measures across the globe will affect the Russian economy recovery in 2021 and in the next few years.

Economic activity is recovering faster than expected as more and more companies have reported returning to the pre-pandemic output level. Retail is also recovering on abolishment of restrictions.

The authority said that fast recovery of demand and high inflation pressure have formed the need to return to a neutral monetary policy.

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