The Bank of Russia for the first time published details of the discussion of the decision on the key rate

The Bank of Russia for the first time revealed details of the discussion of the February decision to maintain the key rate at 16%. Some members of the regulator’s board of directors expressed the opinion that conditions for a rate cut will develop a little earlier than the second half of this year.

“Most participants expected that in the base scenario, conditions for the start of a key rate reduction would develop in the second half of 2024. Some participants did not rule out the possibility that the decline would begin a little earlier,” the report says. published summary of discussions.

The press release clarifies that the conditions for lowering the key rate will arise with a steady decline in inflation and the same level of decline in real interest rates.

Members of the Board of Directors of the Bank of Russia agreed that inflationary pressure is gradually weakening, which is a consequence of tightening monetary policy. In particular, this is reflected in a slowdown in price growth: from an average level of 11.3% in July – November 2023 to 6.5% in December – January. At the same time, the Central Bank admitted that overall inflation pressure in January remained approximately the same as in December.

Today, February 27, the Central Bank also published (.pdf) comments on the regulator’s medium-term forecast, issued following the meeting of the board of directors on February 16. According to published materials, the Central Bank expects that annual inflation in the first quarter will be 7.6%, and the GDP growth rate will be 4.3%.

In addition, the regulator expects that by the end of 2024, Russian banks will move from a liquidity surplus to a liquidity deficit. At the end of the year, the deficit will range from 0.6 to 1.4 trillion rubles, according to the Bank of Russia.

On February 16, the Bank of Russia kept the key rate at 16%. In the release on the key rate, the regulator noted that the return of inflation to the target and its further stabilization near 4% implies a long period of tight monetary conditions.

Prior to this, the rate was raised five times in a row – by only 850 basis points. In December 2023, it was increased from 15% to 16%. In November, the head of the Central Bank, Elvira Nabiullina, spoke about plans to reduce the key rate as the inflation rate approaches 4%. In December, the Russian Ministry of Finance predicted that inflation in 2024 would be 4.5%. At the end of last year, inflation was 7.59%.

Read more about the Bank of Russia’s decision on the key rate in the Kommersant article “Time will crush”.

Erdni Kagaltynov