The Central Bank is still beeping - Economics - Kommersant

The Central Bank is still beeping - Economics - Kommersant

The Central Bank kept the key rate at 7.5% per annum, explaining the decision by moderate annual inflation rates, which slowed down to 11% in February after 11.8% in January, a decrease in inflation expectations (however, still elevated), as well as the continued recovery of economic activity in first quarter. The signal for the future remained quite strong - in the event of an increase in pro-inflationary risks, to which instability in the financial markets of developed countries has now been added, the Central Bank does not exclude a rate increase at the next meetings.

The key rate today, as expected, was left by the Central Bank at 7.5% per annum - thus, the regulator has kept it for the fourth time in a row. As before, the decision is explained by moderate inflation rates - after January's 11.8% in annual terms, in February the figure fell to 11%. In the coming months, as expected by the Central Bank, the indicator will fall below 4% - under the influence of a high base in 2022, however, inflationary pressure will gradually increase. At the end of 2023, according to the forecast of the Bank of Russia, the indicator will be 5–7%, and in 2024 it should return to the target 4%.

Inflationary expectations also played their role in the decision of the Central Bank - they remain at an elevated level, but in March they significantly decreased (to 10.7% after 12.2% in February; see Kommersant of March 15). The balance of risks over the medium term remains skewed towards pro-inflationary ones due to the impact of sanctions, the strengthening of which could further weaken demand for Russian exports.

Among the risk factors, the Central Bank still lists the complication of production and logistics chains, as well as financial settlements due to existing restrictions.

All this, in turn, can lead to higher import costs and “strengthening supply-side restrictions in the Russian economy.” The Central Bank also reacted to recent events - to the emerging risks of the financial stability of the US banking sector due to the bankruptcy of Silicon Valley Bank (see Kommersant of March 15). The list of pro-inflationary risks has been supplemented by a deterioration in the growth prospects of the global economy against the backdrop of instability in the financial markets of developed countries.

In general, the Central Bank, referring to the operational data of the first quarter, continues to state the recovery of business and consumer activity, noting the expansion of domestic demand, which contributes to the improvement of business sentiment, despite “some deterioration in external conditions” and limited opportunities for expanding production due to a shortage of labor against the backdrop of effects of partial mobilization and increased demand for labor in many industries.

Also, the Central Bank recorded an increase in lending, in particular, in the corporate sector, an increase in the funds of the population and organizations in current accounts and deposits in banks. It is noted that the growth of domestic demand was largely facilitated by an increase in budget spending, which compensates for the slowdown in investment demand, in this regard, the Central Bank again warns that in the event of an additional increase in the budget deficit, a tighter monetary policy may be required.

The signal about further actions of the Bank of Russia remained moderately strong: if pro-inflationary risks increase, the Central Bank will evaluate the advisability of raising the key rate at the next meetings. The next one is scheduled for April 28th.

Evgenia Kryuchkova

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