(Finance) – The Russian Central Bank raised interest rates by 200 basis points, bringing them to 15% from the previous 13%, due to inflationary pressure that exceeds the central bank’s expectations. This was announced by the Institute led by Elvira Nabiullina, who is desperately trying to curb hyperinflation and the fall of the ruble.
For this reason the Central Bank considered “necessary to tighten monetary policy further to limit inflation deviation from the target by 4% and brought back in line with the target by 2024″.
“The return of inflation to target and its further stabilization near 4% also means that the restrictive monetary conditions will be maintained for a long period“, warned the central bank, explaining that “in future decisions on reference rates, will take inflationary dynamics into account current and expected, with respect to the objective and economic developments over the forecast horizon, as well as the risks posed by the reaction of the financial markets”.
Speaking about inflation, the central bank explained that the Inflationary pressures have increased significantly until reaching a level higher than the expectations of the Bank of Russia. In the third quarterseasonally adjusted price growth was on average 12.1% in annualized terms (compared to 5.1% in the second quarter). Likewise, core inflation rose to 9.6% (compared to 5.7% in the second quarter). As of October 23, annual inflation rose to 6.6% from 6% in September. According to forecasts updates from the Russian Central Bank, in 2023 annual inflation will fluctuate between 7% and 7.5%. Considering the current direction of monetary policy, annual inflation is expected to decline to 4–4.5% in 2024 and will remain close to 4% thereafter.
The conditions of the credit – notes the Central Institute – yes they are further exacerbated following the increase in the reference rate in the July-September period. The Central Bank’s decisions on rates will create useful monetary conditions ensure balanced loan growth and disinflationary tendencies. In the baseline scenario, the Bank of Russia expects growth of bank credit to the economy to slow to 5-10% in 2024, from 17-20% in 2023.
The economy is expanding faster than expected by the Bank of Russia in September. The expansion of domestic demand is reflected, among other things, in a increase in demand for importswhich since the beginning of 2023 has contributed substantially toweakening of the ruble. In addition to import sanctions, the main supply-side constraint for is related to labor market conditions. According to surveys conducted by businesses, the labor shortage continues to widen. Unemployment is at historic lows. The limited geographical and inter-sectoral mobility of the workforce constitutes a further structural constraint. Monetary policy of the Bank of Russia it will create the conditions to return the economy to a path of balanced growth. In its baseline scenario, the Bank of Russia projects that GDP will grow at 2.2–2.7% in 2023, 0.5–1.5% in 2024, 1.0–2.0% in 2025, 1 .5%–2.5% in 2026.