The national flag flies over the headquarters of the Russian Central Bank in Moscow, Russia, May 27, 2022. Portal/Maxim Shemetov//File Photo Acquires LICENSE RIGHTS
- Russian Central Bank raises interest rates by 100 basis points to 13%
- Prices will remain high for “quite a long time” – Nabiullina
- Raises 2023 inflation forecast to 6-7%, above 4% target
- The bank warns that the tight labor market situation will slow growth
- This content was produced in Russia, where law restricts reporting on Russian military operations in Ukraine
MOSCOW, Sept 15 (Portal) – Russia’s central bank raised its key interest rate by 100 basis points to 13% on Friday, raising borrowing costs for the third straight day in response to the weak ruble and other persistent inflationary pressures.
A month ago, the bank raised interest rates by 350 basis points to 12% in response to the ruble’s fall above 100 against the dollar and a public Kremlin call for tighter monetary policy at an emergency meeting.
On Friday it gave a hawkish forecast that it would consider further rate hikes at upcoming meetings and said inflation risks remained significant.
“We raised the interest rate due to the emergence of inflation risks and will keep it at a high level for a longer period until we are convinced of the sustainability of the inflation slowdown,” the bank’s governor, Elvira Nabiullina, said at a press conference.
In a statement, the bank said: “Significant pro-inflationary risks have emerged, namely domestic demand growth exceeding production expansion capacity and the devaluation of the ruble in the summer months,” the bank said in a statement.
The decision to raise rates was in line with a Portal poll.
Nabiullina said the board had considered maintaining interest rates and taking a more aggressive tightening step, noting that increasing the inflation rate to the bank’s 4 percent target by the end of 2024 would require a higher interest rate.
ARE MORE HIKES COMING?
Russia has gradually reversed an emergency 20% hike it made in February 2022 after Moscow sent troops to Ukraine and the West imposed sweeping sanctions, sending rates down to just 7.5% this year.
But as a sharp weakening of the ruble increased inflation risks due to a tight labor market, strong consumer demand and Moscow’s large budget deficit, the central bank was forced into a tightening cycle that began in late July.
At 1301 GMT, the ruble was 0.7% firmer against the dollar at 96.70, but below its session high of 96.10.
The central bank adjusted its year-end inflation forecast from 5.0-6.5% to 6.0-7.0%. The annual inflation rate was 5.33% as of September 11, above the target of 4%.
Capital Economics said it was not convinced inflation would return to the bank’s 4% target in 2024 and expected further rate hikes.
“Russia’s central bank is an aggressive institution that takes seriously its commitment to fighting inflation,” said Liam Peach, senior emerging markets economist. “As fiscal policy remains accommodative, the economy is expected to continue to overheat and inflationary pressures continue to increase, there will be greater pressure on the central bank to tighten monetary policy.”
The bank increased its forecast for the key interest rate range in 2023 from 7.9-8.3% to 9.6-9.7%. This year’s current account surplus is now $45 billion, up from $26 billion previously.
The bank maintained its economic growth forecast for 2023 at 1.5% to 2.5%, but warned that the economy had now completed its recovery phase and that supply-side constraints, particularly the tighter labor market, would limit further growth.
The next rate setting meeting is scheduled for October 27th.
Reporting by Alexander Marrow, Elena Fabrichnaya, Darya Korsunskaya and Maria Kiselyova; additional reporting by Amruta Khandekar; Writing by Alexander Marrow and Mark Trevelyan in London; Edited by Andrew Osborn, William Maclean, Catherine Evans and Toby Chopra
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