CBR hikes key rate again

On June 11, the Central Bank of Russia (CBR) raised its key rate by 50 basis points to 5.5 %. It was the CBR’s third hike this year for a total increase of 125 basis points. As part of its guidance, the central bank noted that a further hike in the key rate is possible at its next inflation meetings.

The CBR said the hike was mainly a reflection of rising 12-month inflation faster than forecasted. Consumer prices rose last month by 6 % y-o-y. May food prices rose by 7.4 % y-o-y, non-food goods by 6.7 % and services by 3.3 %.

Inflation has picked up steam due to such factors as the recovery in domestic demand from last spring’s Covid Recession (BOFIT Weekly 23/2021) and rising commodity prices on the global market. Moreover, short-term inflation expectations of households and corporations are still elevated. The government has sought to curb the rise in consumer prices by implementing price control measures (BOFIT Weekly 11/2021).

The CBR expects 12-month inflation to remain below its current level, but exceed its April forecast (4.7–5.2 % at the end of 2021). It also expects to reach its inflation target of 4 % a year by the second half of 2022 (earlier by mid-2022). Thereafter, it expects 12-month inflation to remain close to the inflation target.

Consumer price inflation in Russia has picked up and the CBR has hiked its key rate

Sources: Central Bank of Russia, Rosstat, Macrobond and BOFIT.