The Bank of Russia kept the key rate at 16% per annum

On Friday, at a meeting of the board of directors, the Central Bank left the key rate at 16% per annum. The decision was made against the backdrop of weakening, but still high, inflationary pressure. According to the regulator, it is still premature to judge the further speed of the downward trend in inflation; a long period of tight monetary policy will need to consolidate the disinflation process to return the indicator to the target.

The Central Bank on Friday kept the key rate at 16% per annum – this decision was made for the second time in a row; after several increases at the previous meeting in February, the regulator also left the rate unchanged. Inflation, the dynamics of which is guided by the Central Bank, in February (adjusted for seasonality) remained at the level of January, and in March, according to preliminary data, it was decreasing, but the trends are heterogeneous: a slowdown in the growth of prices for goods was accompanied by its acceleration in services. The persistence of elevated inflationary pressure, according to the Central Bank, is facilitated by high domestic demand, even against the backdrop of tightening monetary conditions, the effect of which will increase in the coming months. In particular, according to the Central Bank, with a decrease in mortgage lending, there is an increase in the issuance of unsecured consumer loans.

Annual inflation remains at the level of February – as of March 18, the figure is estimated at 7.7%.

To reduce inflation to the target range of 4–4.5 and further stabilize the indicator near 4%, “a long period of maintaining tight monetary conditions in the economy” is required, the regulator said in a statement. Thus, the Central Bank repeated its previous neutral signal regarding the regulator’s further decisions on the key rate. The next meeting is scheduled for April 26.

The balance of risks in the medium term remains shifted in favor of pro-inflationary ones – the risks themselves remain the same and are associated with changes in the terms of foreign trade, including against the background of sanctions, the persistence of high inflation expectations (although they continue to decline), with the “trajectory of normalization of fiscal policy”, and also with the continuing increase in the deviation of the economy from the “balanced growth” trajectory, which is already assessed as significant.

Thus, according to preliminary data from the Central Bank, rapid growth was observed in the first quarter, but specific estimates are not provided (recall that earlier GDP growth in January was estimated at 4.6%). Domestic demand, against the backdrop of high consumer activity, continues to outpace the ability of manufacturers to expand the production of goods, which are limited primarily by the shortage of labor resources against the backdrop of low unemployment. The Central Bank considers a disinflationary risk to be a faster slowdown in domestic demand than the baseline scenario assumes.

Evgenia Kryuchkova