Bank of Russia increases key rate to 15.00% p.a.

      On 27 October 2023, the Bank of Russia Board of Directors decided to increase the key rate by 200 basis points to 15.00% per annum.

    Current inflationary pressures have significantly increased to a level above the Bank of Russia’s expectations. Steadily rising domestic demand is increasingly exceeding the capabilities to expand the production of goods and the provision of services. Inflation expectations remain elevated. Lending growth paces are invariably high. The updated medium-term parameters of fiscal policy assume a slower than expected decline in fiscal stimulus in the years ahead. Therefore, it is required to additionally tighten monetary policy to limit the upward deviation of inflation from target and return it to 4% in 2024. The return of inflation to target and its further stabilisation close to 4% also means that tight monetary conditions will be maintained in the economy for a long period.
      In its further key rate decision-making, the Bank of Russia will take into account actual and expected inflation dynamics relative to the target and economic developments over the forecast horizon, as well as the risks posed by domestic and external conditions and the reaction of financial markets. According to the updated forecast of the Bank of Russia, annual inflation will range from 7.0 to 7.5% in 2023. Given the current monetary policy stance, annual inflation will decline to 4.0–4.5% in 2024 and stay close to 4% further on.

    Inflation movements.

    Current inflationary pressures have significantly increased to a level above the Bank of Russia’s expectations. In the third quarter, seasonally adjusted price growth averaged 12.1% in annualised terms (compared to 5.1% in the second quarter). Similarly, core inflation went up to 9.6% (compared to 5.7% in the second quarter). As of October 23, annual inflation rose to 6.6% from 6.0% in September.
    Higher inflationary pressures are seen across an increasingly broader range of goods and services. This means that a steady rise in domestic demand is progressively exceeding the capabilities to expand the production of goods and the provision of services. These conditions boost businesses’ appetite to pass higher costs on to consumers, which is driven among others by the weakening of the ruble and labour shortages. 

   Households’ inflation expectations remain elevated. Businesses’ price expectations have continued to rise, reaching multi-year highs. Analysts’ inflation expectations for 2023 and 2024 have increased as well, but they are anchored close to 4% for the medium term.

   According to the updated forecast of the Bank of Russia, annual inflation will range from 7.0 to 7.5% in 2023. Given the monetary policy stance, annual inflation will decline to 4.0–4.5% in 2024 and stay close to 4% further on.

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