Russian central bank holds rate at 7.5%, keeps future hikes on the table

RUSSIA’S central bank held its key interest rate at 7.5 per cent on Friday (Apr 28), keeping the need for rate hikes on the table over inflationary risks while lowering its year-end inflation forecast by 50 basis points and improving its GDP estimate.

In a series of rate cuts last year, the bank gradually reversed an emergency hike to 20 per cent made in late February following Russia’s decision to send tens of thousands of troops into Ukraine which saw the West impose sanctions on Moscow.

It has now held rates steady at 7.5 per cent since the last cut in September, but has adopted a more hawkish stance, pointing to inflationary risks from high and unanchored inflation expectations, significant labour shortages and Russia’s wide budget deficit.

The bank said it would consider in forthcoming meetings the necessity of a key rate increase to stabilise inflation close to 4 per cent in 2024.

Annual inflation, which spiked to over 20-year highs in 2022, slowed to 2.55 per cent as of April 24 as last year’s base effect took hold. It is expected to pick up again above the bank’s 4 per cent target this year.

The Bank of Russia lowered its year-end inflation forecast to 4.5-6.5 per cent from 5.0-7.0 per cent and improved its estimate for Russia’s economic growth to a range of 0.5-2.0 per cent from a maximum of 1 per cent envisaged previously.

The International Monetary Fund also forecasts economic growth for Russia in 2023, following a 2.1 per cent decline last year, though Western attempts to isolate it and lower energy revenues are seen dampening prospects for years to come.

“Increasing foreign trade and financial restrictions can further weaken demand for Russian exports, contributing to inflation through exchange rate movements,” the bank said in a statement.

The bank revised downward its forecast for Russia’s 2023 current account surplus, to US$47 billion from US$66 billion.

The decision to hold rates was in line with a Reuters poll, in which analysts said they expected the bank to signal its readiness to hike the cost of borrowing later this year.

Central Bank governor Elvira Nabiullina will shed more light on the bank’s forecasts and policy in a media briefing at 1200 GMT.

The next rate-setting meeting is scheduled for Jun 9. REUTERS