At its meeting on September 13, the Board of Directors of the Bank of Russia decided to raise the interest rate by another 100 basis points – to 19% per annum and allowed its further growth. The decision on the next rate increase could be made on October 25, the bank’s press service reported.
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According to the Bank of Russia’s forecasts, taking into account the current monetary policy (MP), annual inflation will fall to 4-4.5% in 2025 and approach 4% in the future. Annual inflation at the end of 2024 is likely to exceed the range forecast in July of 6.5-7%.
The Bank of Russia explained why it raised the interest rate for the second time in a row on September 13. The decision was influenced by the current inflationary pressures, the still “tight” labor market and high consumer activity. At the same time, the decision to raise the rate from 16% to 18%, taken in July, had a positive impact on long-term inflation expectations, which declined.
The regulator clarified that the growth of domestic demand significantly exceeds the possibility of expanding the supply of goods and services, which is why it is necessary to further tighten monetary policy, which aims for inflation of 4% in 2025.
High market interest rates support savings sentiment, but have so far not sufficiently restricted lending.
“The decision of the Central Bank of Russia will accelerate the formation of monetary conditions necessary for the growth of savings activity and the return of credit to balanced growth,” the Central Bank of the Russian Federation said.
On August 29, the Bank of Russia announced that it would allow the rate to rise to 22% in 2025, suggesting that inflation would rise to 15% due to a significant reduction in the supply of goods and services. The Central Bank plans to “significantly tighten” monetary policy (monetary policy).
“The key rate will average 20-22% per annum in 2025. In 2026, to limit inflation risks and ensure inflation returns to target, the Bank of Russia will also pursue a tighter monetary policy than in the baseline scenario,” reads the draft prepared by the regulator “Main Directions of the Unified State Monetary Policy for 2025 and the Period 2026-2027.”
The maximum rate level was set by the Bank of Russia in March 2022: 20% per annum.
Author:
Ekaterina Strukova
Source: RB
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