Russia’s Central Bank has again raised its key rate - by 0.25 percentage points to 6.75%, noting that it holds open the prospect of further key rate rises at its upcoming meetings, according to the press release following the key rate meeting of the board of directors on Friday.
"On September 10, 2021, the Bank of Russia Board of Directors decided to increase the key rate by 25 b.p. to 6.75% per annum. The contribution of persistent factors to inflation remains considerable on the back of faster growth in demand relative to output expansion capacity. In this environment, given high inflation expectations, the balance of risks for inflation is tilted to the upside. This may bring about a more sustained deviation of inflation from the target. The Bank of Russia’s monetary policy stance is aimed to limit this risk and return inflation to 4%," the regulator said.
"If the situation develops in line with the baseline forecast, the Bank of Russia holds open the prospect of further key rate rises at its upcoming meetings," the press release said.
Key rate decisions will take into account actual and expected inflation dynamics relative to the target and economic developments over the forecast horizon, as well as risks posed by domestic and external conditions and the reaction of financial markets, the Central Bank noted.
Inflation is developing above the regulator’s forecast, according to the press release.
"In August, monthly consumer price growth (seasonally adjusted) was up again, after a slowdown in July. Annual inflation rose to 6.68% (vs 6.46% in July). According to an estimate as of September 6, it is 6.74%. Based on Bank of Russia estimates, indicators reflecting the most sustainable price movements are persistently above 4% (annualized)," the regulator said.
According to the Central Bank’s baseline scenario, annual inflation will begin to slowdown in Q4 2021. "It is forecast to edge down to 4-4.5% in 2022 and will remain close to 4% further on," the press release said.
Economic activity continues to grow in Russia, the regulator said. "The Russian economy reached its pre-pandemic level in 2021 Q2. High-frequency estimates suggest that economic activity continued to grow in Q3 albeit at a somewhat slower pace. Based on Bank of Russia estimates, this is largely associated with the return of the Russian economy to a balanced growth path," according to the press release.
Growth in real wages and households’ low propensity to save, driven by high inflation expectations, support growth in consumer activity, especially in non-food markets. That said, the recovery of the commercial services sector decelerated between July and August due to partially tightened anti-pandemic measures. Growing domestic and external demand and high corporate profits shore up investment activity, the regulator said.