MOSCOW (Reuters) -Russia’s central bank held its key interest rate at 7.5% on Friday, keeping the need for rate hikes on the table over inflationary risks while lowering its year-end inflation forecast by 50 basis points and improving its GDP estimate.
In a series of rate cuts last year, the bank gradually reversed an emergency hike to 20% made in late February following Russia’s decision to send tens of thousands of troops into Ukraine which saw the West impose sanctions on Moscow.
It has now held rates steady at 7.5% since the last cut in September, but has adopted a more hawkish stance, pointing to inflationary risks from high and unanchored inflation expectations, significant labour shortages and Russia’s wide budget deficit.
The bank said it would consider in forthcoming meetings the necessity of a key rate increase to stabilise inflation close to 4% in 2024.
Annual inflation, which spiked to over 20-year highs in 2022, slowed to 2.55% as of April 24 as last year’s base effect took hold. It is expected to pick up again above the bank’s 4% target this year.
UPDATED FORECASTS
The Bank of Russia lowered its year-end inflation forecast to 4.5-6.5% from 5.0-7.0% and improved its estimate for Russia’s economic growth to a range of 0.5-2.0% from a maximum of 1% envisaged previously.
The International Monetary Fund also forecasts economic growth for Russia in 2023, following a 2.1% decline last year, though Western attempts to isolate it and lower energy revenues are seen dampening prospects for years to come.
“Increasing foreign trade and financial restrictions can further weaken demand for Russian exports, contributing to inflation through exchange rate movements,” the bank said in a statement.
The bank revised downward its forecast for Russia’s 2023 current account surplus, to $47 billion from $66 billion.
The decision to hold rates was in line with a Reuters poll, in which analysts said they expected the bank to signal its readiness to hike the cost of borrowing later this year.
Central Bank Governor Elvira Nabiullina will shed more light on the bank’s forecasts and policy in a media briefing at 1200 GMT.
The next rate-setting meeting is scheduled for June 9.
(Reporting by Reuters; Writing by Alexander MarrowEditing by Andrew Osborn and Louise Heavens)
