The Bank of Russia lowered the key rate by 3 percentage points (pp) to 14% per annum, showing that it sees possibilities for its further reduction in 2022, the regulator reported on Friday.
"On 29 April 2022, the Bank of Russia Board of Directors decided to cut the key rate by 300 basis points to 14.00% per annum. The external environment for the Russian economy remains challenging and significantly constrains economic activity. With price and financial stability risks no longer on the rise, conditions have allowed for the key rate reduction," the statement said.
According to the Bank of Russia, "Recent weekly data indicate a slowdown in current price growth rates on the back of a strengthening of the ruble and a cooling of consumer activity. Further inflation movements will be shaped by such impactful factors as the efficiency of import substitution processes and the scale and speed at which imports of finished goods, raw materials and components will be recovering. The Bank of Russia’s monetary policy will take into account the need for a structural transformation of the economy and will ensure a return of inflation to target in 2024."
The regulator noted if the situation develops in line with the baseline forecast, "the Bank of Russia sees room for key rate reduction in 2022".
The Bank of Russia significantly raised the inflation forecast in Russia to 18-23% in 2022, then it will decrease to 5-7% in 2023, and return to 4% in 2024. "According to the Bank of Russia’s forecast, given the monetary policy stance, annual inflation will reach 18.0-23.0% in 2022, slowing down to 5.0-7.0% in 2023 and returning to 4% in 2024," the regulator said.
At the same time, the regulator projects GDP contraction by 8-10% in 2022, by up to 3% in 2023, and GDP growth by 2.5-3.5% in 2024 in its baseline forecast. "According to the Bank of Russia’s baseline forecast, GDP will reduce by 8.0-10.0% in 2022. The decrease will be mainly driven by supply-side factors. In 2023, the Russian economy will begin growing gradually amid a structural transformation. In 2023 Q4, output will be up by 4.0-5.5% on the same period in 2022. However, the overall GDP change in 2023 will be within the range of (-3.0)-0.0% due to the base effect of 2022 Q1. In 2024, GDP will increase by 2.5-3.5%," the statement said.
The next meeting of the Bank of Russia Board of Directors will be held on June 10.