Russian c-bank keeps key rate unchanged at 20% per annum
On 18 March 2022, the Board of Directors of the Central Bank of Russia decided to keep the key rate at 20% per annum.
Against the background of a drastic change in external conditions, the sharp increase in the Bank of Russia key rate of 28 February helped sustain financial stability and prevented uncontrolled price rises, the regulator says.
The Russian economy is entering the phase of a large-scale structural transformation, which will be accompanied by a temporary but inevitable period of increased inflation, mainly related to adjustments of relative prices across a wide range of goods and services. The Bank of Russia’s monetary policy is set to enable a gradual adaptation of the economy to new conditions and a return of annual inflation to 4% in 2024.
Moving forward, in its key rate decision-making the Bank of Russia will take into account actual and expected inflation movements relative to the target and economic developments over the forecast horizon, as well as risks posed by domestic and external conditions and the reaction of financial markets.
The Russian economy is entering the phase of a large-scale structural transformation, which will be accompanied by a temporary but inevitable period of increased inflation, mainly related to adjustments of relative prices across a wide range of products and services. Business adaptation to the change in external conditions, including a changeover in production and supply chains, will become a key driver for movements in relative prices in the coming quarters.
Flash indicators, including the Bank of Russia’s business survey, suggest a deterioration of the situation in the Russian economy. Businesses in many industries are reporting production and logistic difficulties amid the trade and financial restrictions imposed on Russia. A sharp surge in uncertainly weighs heavily on the sentiment and expectations of households and businesses.
According to Bank of Russia estimates, GDP will reduce over the coming quarters. This decline will be mainly driven by supply-side factors, thereby producing a limited disinflationary effect. The stimulus measures being adopted by the Government and the Bank of Russia are set to limit the scale of economic downturn. A further recovery path of the Russian economy will be largely shaped by the degree and speed of its adjustment to new conditions.
Proinflationary risks have considerably increased and are now prevailing over the entire forecast horizon. In the short term, the effect of proinflationary factors is likely to be accentuated by high and unanchored inflation expectations. Over a longer horizon, the Russian economy faces considerable uncertainty regarding the speed and scale of the adjustment of aggregate supply in response to the recent increase in trade and financial restrictions.