The Central Bank will move to lower rates after a steady decline in inflation

The Bank of Russia will be able to move to lowering the key rate only after a sustainable decline in inflation has been recorded. This was stated by the chairman of the regulator Elvira Nabiullina at press conferences following the meeting of the board of directors.

“As for a possible reduction in the key rate, it will be possible to move on to it after we see a sustainable decline in inflation. <...> According to our base forecast, we see that this could happen next year,” she said.

If there are deviations from the base scenario, then the monetary policy (MCP) pursued by the regulator will be more stringent, Nabiullina emphasized.

“When exactly we will be able to move to easing, we cannot say now; it will depend on the data that we receive on inflation, inflation expectations, etc.,” she added.

Nabiullina also noted that at today’s meeting the board of directors did not discuss keeping the rate at the same level, but considered three options: an increase by 1 percentage point, 1.5 percentage points or 2 percentage points. As a result, the regulator decided to increase the rate by 2 p.p. to 15%.

All analysts surveyed by Vedomosti were confident that the regulator would continue its policy of tightening monetary policy: 16 out of 18 predicted an increase to 14%, five analysts voted for raising the rate to 15%.

The Central Bank explained the need to tighten monetary policy by significant current inflationary pressure, a steady increase in domestic demand, which increasingly exceeds the capacity to expand the production of goods and services, as well as high rates of credit growth. The Bank of Russia will make further decisions on the rate taking into account the actual and expected dynamics of inflation relative to the target, economic development over the forecast horizon, as well as assessing risks from internal and external conditions and the reaction of financial markets to them, the Central Bank said in its release.

On October 27, the regulator also updated the forecast for annual inflation: now the regulator expects that by the end of 2023 it will be in the range of 7-7.5% (the previous year was 6-7%). Next year it will drop to 4-4.5% and will remain close to 4% in the future. On October 10, Deputy Chairman of the Central Bank Alexey Zabotkin during a speech in the State Duma notedthat in order to return inflation to the target of 4% in 2024, the regulator does not rule out tightening monetary policy next year, he emphasized. Annual inflation in Russia will reach its peak in the spring and summer of next year, Zabotkin added.