Putin: increase in the key rate of the Central Bank was a reaction to heating up inflation

The Bank of Russia was forced to raise the key rate to 8.5% due to inflationary warming trends, Russian President Vladimir Putin said at a meeting on the development of the construction industry.

“The rate has grown because there are trends associated with heating up inflation, and the Central Bank, as a key organization responsible for maintaining macroeconomic stability, was forced to react accordingly,” the president said (quote according to TASS).

Board of Directors of the Bank of Russia following the meeting on July 21 raised the key rate immediately by 1 percentage point to 8.5%. The market basically did not expect such a decision by the Central Bank: the majority of economists polled by Vedomosti predicted growth by 0.5 p.p. , including due to limited free labor resources.

At the same time, the regulator gave a tough signal – it admits the possibility of a further increase in the key rate at the next meetings to stabilize inflation near 4% in 2024 and beyond. According to the Central Bank’s forecast, taking into account the current monetary policy, annual inflation will be 5-6.5% in 2023 and will return to 4% in 2024.