Bank of Russia decided to maintain the interest rate at 7.5% amid moderate inflation, estimated at 2.5% on an annual basis in April, although this may change later this year. The monetary authority improved its forecast for the Russian economy and now expects growth entirely in positive figures, up to 2.0% for 2023.At a meeting of its Board of Directors on Friday, the Central Bank of Russia kept its key interest rate at the current level of 7.5%.
The monetary authority expects inflation to remain below 4% in the coming months and to begin to gradually grow in the second half of 2023, reaching 4.5 – 6.5% at the end of the period. Previous forecasts were in the 5 – 7% range. However, expectations in the medium term are still skewed towards higher inflation risks.
These are linked to significant labor shortages in some industries, the impact of geopolitical tensions on foreign trade, including tougher sanctions that would further weaken demand for Russian goods abroad and complicate production chains, logistics and financial calculations. The CBR signaled that future rate hikes are possible, elaborating:
In the context of a gradual increase in the current inflationary pressure, the Bank of Russia, at the next meetings, will evaluate the feasibility of raising the key rate to stabilize inflation near 4% in 2024.Among the short-term risks, the Bank of Russia highlighted “a deterioration in the growth prospects of the global economy against the backdrop of instability in the financial markets of developed countries.
The monetary policy regulator sees the sanctioned nation’s gross domestic product growing between 0.5% and 2.0% by the end of 2023. Its previous estimate was partially in negative territory, between a decline of 1% and an increase of 1%. Expectations for the next couple of years remained unchanged — GDP growth in the range 0.5 – 2.5% in 2024 and 1.5 – 2.5% in 2025.