Moscow, Russia: The Russian central bank cut its key interest rate by 300 basis points for the third time since its emergency hike in late February, citing slowing inflation and a rebound in the ruble.
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Russia's central bank on Friday unexpectedly left key interest rates unchanged at 21%, citing improved monetary tightening that created conditions to tame high inflation.
“Monetary conditions have tightened further than expected in the key interest rate decision in October,” the bank said. He saidReferring to factors that are “independent” of its monetary policy.
“Given the marked increase in interest rates to borrowers and the slowdown in credit activity, tight monetary conditions create the necessary prerequisites to resume disinflation processes and return inflation to target, despite higher current price growth and higher domestic demand.” She added.
Markets had widely expected the central bank to raise interest rates by another 200 basis on Friday, after taking such a step in October amid ongoing efforts to curb inflation stoked by the military costs of Moscow's invasion of Ukraine and Western sanctions on its key commodity. exports.
The bank said on Friday that it would evaluate the need to increase its key interest rate at its next meeting in February. Annual inflation is currently expected to fall to 4% in 2026 and remain at this target over the future horizon.
Russia's consumer price index is currently more than double that rate, with annual inflation reaching 9.5% as of December 16, the bank said on Friday, citing continuing pressures, especially in the household and business sectors. The Consumer Price Index reached 8.9% in November on an annual basis, compared to 8.5% in October. This increase is largely due to higher food prices, With the rise in the prices of milk and dairy products this year.
Inflation a 'worrying signal'
Maintaining interest rates comes even after Russian President Vladimir Putin admitted during his annual question and answer session on Thursday with Russian citizens that interest rates are high. Inflation in the country was a problem There is evidence that the economy is overheating. However, he stressed that Russia can still achieve economic growth of 3.9% to 4% this year.
“Of course, inflation is a worrying signal. Just yesterday, when I was preparing for today’s event, I spoke with the head of the Central Bank, Elvira (Nabiullina), who told me that the inflation rate was already around 9.3%. But wages were already around 9.3%,” he said, according to comments reported by Interfax and translated by Google. , “It grew by 9% in real terms, and I want to emphasize that – in real terms minus inflation – the disposable income of the population also grew.”
The International Monetary Fund expects Russia to achieve growth of 3.6% this year, before slowing to 1.3% in 2025.
“A sharp slowdown is envisaged as private consumption and investment slow amid easing labor market distress and slower wage growth,” the IMF said.
“What we are seeing now in the Russian economy is that it is pushing against capacity constraints,” said Alfred Kammer, director of the IMF's European Department. He said this when the Fund issued its latest economic forecasts In October.
“So we have a positive production gap, or you can put it differently – the Russian economy is overheating. What we expect for next year is also simply the impact that it exceeds your supply capacity, and you cannot sustain it for very long. So we see an impact on the transition to a more normal area,” he said. “There is, of course, supported by tight monetary policy by the Russian Central Bank.”
Kammer added: “Tight monetary policy, in order to reduce inflation, slows down aggregate demand, and in 2025 it will have these effects on GDP. That is why we are seeing a slowdown in 2025.”
