The Bank of Russia retained the key rate at 7.5% per annum for the sixth time in a row, the regulator said in a statement on Friday.
"Current price growth rates, including the stable indicators of inflation, continue to increase. Inflation expectations of households and businesses’ price expectations remain high. Economic activity is rising faster than the Bank of Russia’s April forecast assumed, which in large measure reflects a strong rebound in domestic demand," the statement reads.
Accelerating fiscal spending, deteriorating terms of foreign trade and the situation in the labor market remain pro-inflationary risk drivers. The overall balance of inflation risks has tilted even more to the upside," the bank said.
The regulator also maintained its inflation forecast for 2023 at the level of 4.5-6.5%. "According to the Bank of Russia’s forecast, given the current monetary policy stance, annual inflation will come in at 4.5-6.5% in 2023 to return to 4% in 2024," the statement reads.
"Economic activity is rising faster than the Bank of Russia’s April forecast assumed. This in large measure reflects a strong rebound in domestic demand. Despite the persistently challenging external conditions, this supports positive business sentiment. However, the current capacity to expand production in the Russian economy is increasingly limited by labor market conditions," the regulator noted.
At the same time, the Bank of Russia does not rule out the possibility of raising the key rate. "In the context of gradually rising inflationary pressures, the Bank of Russia holds open the prospect of increasing the key rate at its next meetings to stabilize inflation close to 4% in 2024 and further on," the statement said.
The Bank of Russia Board of Directors will hold its next meeting on the key rate on July 21, 2023.
