The Central Bank expects to return the rate to the range of 5.5-6.5% by 2026

The Bank of Russia expects the key rate to return to the long-term neutral range estimated at 5.5–6.5% per annum by 2026 in the baseline scenario. This is stated in project the main directions of the unified state monetary policy for 2024–2026.

“Inflation will return to the target at the end of 2024 and will remain close to 4% in the future. This will be facilitated by the monetary policy of the Bank of Russia,” the document says.

In the baseline scenario, at the end of the current year, the average rate will be 7.9–8.3% per annum, in 2024 – 8.5–9.5% and 6.5–8.5% in 2025.

“By 2026, the Bank of Russia will return the key rate to the long-term neutral range, which it estimates at 5.5–6.5% per annum,” the regulator believes.

Further decisions on the key rate will be made taking into account the actual and expected dynamics of inflation, the process of economic restructuring and risks from internal and external conditions and the reaction of financial markets to them, the document says.

Earlier this week, Central Bank Deputy Chairman Alexei Zabotkin saidthat the rate will remain unchanged subject to the realization of “some kind of disinflationary risks”, which are not observed today. All indications point to “a high probability” that “more than one July rally alone” will be needed, he noted.

On July 21, the Board of Directors of the Central Bank decided to raise the key rate by 1 percentage point at once, to 8.5%. This is the first increase since September 2022, when the Central Bank lowered the rate by 0.5 percentage points to 7.5%. The chairman of the Central Bank, Elvira Nabiullina, explained the increase in the rate by the desire to return inflation to the level of 4%. At the same time, she allowed a further increase in the rate.

Annual inflation in July amounted to 4.3% after 3.25% in June, Rosstat reported on August 9. On a monthly basis, prices rose by 0.63%.