Russian central bank hikes interest rate again — Cross Talk India

The Bank of Russia has raised its key interest rate from 18% to 19%, citing persistent inflationary pressures. Domestic demand continues to exceed the economy’s capacity to produce goods and services to meet it, the regulator said in a statement on Friday.  

Inflation is expected to be above the bank’s July forecast of 6.5-7.0% this year, the statement added. The increase in consumer prices stood at 9.1% year-on-year in August, more than double the government target of 4%.

”Additional monetary tightening is needed to restart the disinflation process [the reduction in inflation]… and ensure that inflation returns to the 2025 target,” the regulator said in a statement.

The Bank of Russia increased its interest rate by 200 basis points in July. In the second half of 2023, the regulator raised the rate five times, from 7.5% to 18%.

The central bank said on Friday that a further rise is possible at the next meeting in October, as stubborn inflationary pressures “remain generally high and have not yet started on a downward trend.”

When asked at a press conference whether the key rate could be raised to 20% and above, the head of the central bank, Elvira Nabiullina, said the regulator was “ready to make the necessary decisions to bring inflation back to 4%.”

The central bank cited data on the gross domestic product (GDP) for the second quarter of this year and economic indicators from July and August as showing that Russia’s economic growth “has somewhat slowed.” Limited supply and lower external demand are behind the slowdown, the regulator noted.

Consumer activity remains high against the backdrop of growth in household incomes and unemployment at an all-time low, it added.

Russia’s GDP grew 3.6% in 2023 compared to the previous year. Earlier this month, the Ministry of Economic Development raised its forecast for GDP growth in Russia in 2024 to 3.9% from an April estimate of 2.8%.

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