Central Bank of Russia tightens its monetary policy

To tame high inflation, the Central Bank of Russia (CBR) on February 11 raised its key rate by 100 basis points to 9.5 %. The rate hike was of the same magnitude as in December. It was the eighth hike in the key rate since last March. The key rate has not been this high since April 2017. In its forward guidance, the CBR did not rule out the possibility of further hike at its next meetings.

January consumer prices rose by 8.7 % y-o-y, a pace well above the CBR’s 4 % target level. Food prices were up by 11.1 % y-o-y in January, while other goods rose by 8.7 % and services by 5.4 %. The acceleration in inflation is a global phenomenon and due to multiple factors, some of which are transitory (BOFIT Weekly 51/2021). Inflation risks are still elevated, but the CBR expects 12-month inflation to decrease to 5‒6 % p.a. (4‒4.5 % earlier) in 2022. The CBR also sees inflation returning to its 4 % target level in mid-2023.

The CBR also slightly modified its outlook on Russian economy. The 2023 GDP growth projection was reduced from 2‒3 % earlier to 1.5‒2.5 %. The 2022 and 2024 growth forecasts remained unchanged at 2‒3 %. The average of the key rate is expected to be this year in the range of 9‒11 % (7.3‒8.3 % earlier) and 7.5‒9 % in 2023 (5.5‒6.5 % earlier).

The CBR raised its key rate again to tame high inflation

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