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Russia’s Central Bank has decided to increase the key interest rates by 100 basis points to 16 percent per annum.
“The current inflationary pressure remains high. Based on 2023’s results, annual inflation is expected to be near the upper limit of the forecast range of 7.0–7.5 percent,” reads the Russian Central Bank’s statement.
This move marks the fifth consecutive rate hike since the summer, when the baseline stood at 7.5 percent. The bank warned that “getting inflation back to the target by 2024 and keeping it stable at around 4 percent” would require keeping strict financial policies in place for a long time.
The last time the Russian Central Bank raised the key rate was on April 27, from 13 percent to 15 percent. Many experts expected the rate to be raised to 16 percent. The key rate reached its highest point in recent years in February 2023, when it was raised from 9.5 percent to 20 percent following the full-scale invasion of Ukraine. Subsequently, the Russian Central Bank began to lower the rate and brought it down to 7.5 percent. The rate began to rise again in July 2024.
The Central Bank justified its decision by citing ongoing challenges arising from domestic demand surpassing the economy’s capacity to meet it with adequate goods and services.
Inflationary pressures in Russia have surged in recent months, exceeding the Central Bank’s earlier estimates. The regulator’s statement highlighted the current inflationary landscape as a driving force behind the decision to implement the interest rate hike. Despite the consecutive rate hikes, the Central Bank anticipates annual inflation to decrease to a range of 4 percent-4.5 percent in 2024 and to remain close to 4 percent in the subsequent period.
Moreover, the Bank of Russia acknowledged that economic activity has been outpacing its earlier expectations, with recent data indicating faster growth than projected in October. The statement revealed that GDP growth in the third quarter of 2023 and the monthly data for the final quarter indicate a more substantial deviation of the Russian economy from a balanced growth path than initially anticipated. As a result, the Central Bank now foresees GDP growth in 2024 exceeding the April forecast and surpassing 3 percent.
Looking ahead, the Bank of Russia emphasized that the return of inflation to target levels in 2024 and its subsequent stabilization around 4 percent hinge on the maintenance of tight monetary conditions for an extended period. The Central Bank’s actions reflect a commitment to address inflationary challenges and ensure the stability of the Russian economy amid changing economic dynamics and external uncertainties.
The regulator attributed the increased consumer activity to rising real wages and lending, along with significantly higher profits for companies and positive business sentiment remain at 16%. These factors, combined with fiscal stimulus, are contributing to robust investment demand.
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