CBR kept key rate unchanged and released updated economic forecast

October 28, the Central Bank of Russia decided to keep its key rate at 7.5 %. Most analysts expected the decision as the CBR had signalled in September that it was near the end of the current rate-cutting cycle. The CBR dropped the key rate five times between April and September by a total of 12,5 percentage points.

On-year inflation in Russia is still high. Even with a slower rise in prices than in previous month, consumer prices were up by 13 % y-o-y in October. Food prices were up by 12 %, non-food goods by 13 % and services by 11 %. The product categories that saw the largest increases were detergents and cleaning agents (up 32 %), sugar (31 %), insurance (30 %), butter (22 %) and grain products (21 %). The inflation expectations of firms and households are high and have grown slightly since summer.

The CBR released also its updated economic forecast for 2022‒2025. The previous forecast released in July expected the economy to contract by 4‒6 % this year, while the latest outlook sees GDP contracting only by 3‒3.5 %. The forecast for the next years remains unchanged, i.e. the economy is expected to contract by 1‒4 % next year and grow by 1.5‒2.5 % a year in 2024 and 2025. Domestic demand is forecasted to weaken less than previously expected this year. Household consumption is expected to contract by 3–3.5 %, while investment could even rise in the range of 0–1 %. Exports should contract by 15–16 %, while imports decline by 22.5–23.5 %.

The CBR now expects to finish out this year with 12-month inflation running in the range of 12‒13 %. The inflation forecast for other years was unchanged. Inflation stabilises in the range of 5‒7 % by the end of 2023 and returns to the CBR’s 4 % inflation target in 2024 and 2025. The CBR expects its key rate to settle in the range of 4.5‒6.4 % next year and 4.1‒4.8 % in 2024.

The CBR decided to leave its key rate unchanged in October

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