Russia’s central bank opted to keep its key interest rate steady at 16 percent for the third consecutive meeting, acknowledging persistent inflationary pressures, and revised inflation forecasts for 2024. The decision, in line with expectations, underscores Russia’s challenge of achieving the 4 percent inflation target amidst strong consumer demand and labor shortages.
Acknowledging the lingering impact of rising domestic demand outpacing supply expansion, Russia’s central bank raised its inflation forecast for 2024 to a range of 4.3-4.8 percent, up from the previous estimate of 4-4.5 percent. This adjustment reflects the bank’s recognition that inflation may take longer to converge to the target than previously anticipated.
The central bank’s actions reflect its constant vigilance regarding inflation, which has been its primary concern. Previous interest rate hikes totaling 850 basis points in the latter half of 2023, including an emergency hike in August amidst currency volatility, underscore Russia’s commitment to price stability.
In 2023, inflation declined to 7.4 percent from 11.9 percent in 2022. Economists now expect it to largely remain above the 4 percent target this year.
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Despite inflationary challenges and high interest rates, the bank revised Russia’s economic growth outlook upward to a range of 2.5-3.5 percent for 2024 from the previous 1-2 percent range.
The more positive GDP forecast mirrors the Ministry of Economy’s expectations of 2.8 percent growth this year. Moreover, the central bank increased is forecast for the 2024 current account surplus from $42 billion to $50 billion.
During the first half of 2023, Russia’s central bank cut interest rates to 7.5 percent. However, it gradually reversed its decision with a 20 percent hike in February 2022 after conflict with Unkrain commenced.
