The Bank of Russia (CBR), which predicted that the economy will rebound this year and grow by as much as 2%, kept its benchmark interest rate at 7.5% on Friday. The CBR’s governor, Elvira Nabiullina, remarked on the decision and warned that some elements might risk the regulator’s goal of bringing inflation back to its 4% objective.
Regarding the risks that could result in inflation deviating from the preliminary forecast. There are variables that encourage inflation, and while we predict some acceleration and a rise in core inflation, the expert stated we do not expect double-digit inflation.
The central bank asserts that as a consequence of the Russian economy responding to the sanctions more quickly than expected, consumer demand has been rising and supply has not been able to keep up. Inflation has fallen as a consequence.
We will also pay special attention to how the budget policy is implemented, she said. We proceed with the budget plans put out by the administration, but tighter monetary policy will be required if the structural budget deficit widens.
However, we must take into account all of the variables because some disinflationary factors may cancel out inflationary effects.
While GDP dynamics are improving, the CBR reports that inflation is slightly below its February forecast. “We expect the economic recovery to continue this year, potentially with further inflationary pressure.
According to Nabiullina, if there are indications of an increase in inflation, “that will threaten achieving 4% inflation in 2024,” and that this will mostly rely on demand-side variables. At subsequent meetings, the central bank might then be required to raise the key rate.
