Russian central bank holds rates at 16%, raises inflation forecast By Reuters

By Elena Fabrichnaya and Alexander Marrow

MOSCOW (Reuters) – Russia’s central bank held its key interest rate at 16% for the third meeting running on Friday, but raised its inflation forecast for 2024, acknowledging for the first time that it may struggle to reach its 4% target this year.

The decision was in line with a Reuters poll of economists, which had forecast that the persistence of inflation, fanned by strong consumer demand and widespread labour shortages, would prevent the central bank from easing borrowing costs more quickly.

The bank lifted its inflation forecast to 4.3-4.8% from 4-4.5% previously.

“Due to the remaining elevated domestic demand, which outstrips the capabilities to expand supply, inflation will return to the target somewhat more slowly than the Bank of Russia forecast in February,” the bank said in a statement.

The Bank of Russia had raised rates by 850 basis points in the second half of 2023, including an unscheduled emergency hike in August as the rouble tumbled past 100 to the dollar and the Kremlin called for tighter monetary policy.

Inflation, the bank’s main area of concern, stood at 7.4% in 2023, compared with 11.9% in 2022. Economists expect it to remain well above the central bank’s 4% target this year.

IMPROVED GDP PROSPECTS

The bank updated its macroeconomic forecasts, raising Russia’s economic growth prospects to 2.5-3.5% from the previous range of 1-2%. It increased its forecast for the average key rate range in 2024 to 15-16% from 13.5-15.5%.

Governor Elvira Nabiullina was due to address the media at 1200 GMT. The bank’s next rate-setting meeting is scheduled for June 7.

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Russia’s economy rebounded sharply last year from a slump in 2022, but the growth relies heavily on state-funded arms and ammunition production and masks other problems.

“Labour shortages come as the key constraint on the expansion of output of goods and services,” the bank said. “Concurrently, labour market tightness continues to increase.”

The bank’s improved GDP forecast mirrors that of the economy ministry, which now expects economic growth at 2.8% this year, while envisaging a weaker rouble and shrinking current account surplus in the coming years. The ministry’s stress scenarios anticipate stalling growth and a diving rouble.

The central bank raised its 2024 current account surplus forecast to $50 billion from $42 billion previously.

In the first half of 2023, the central bank had cut rates as low as 7.5%, gradually reversing an emergency hike to 20% implemented in February 2022 after Moscow sent its army into Ukraine, triggering sweeping Western sanctions.

SOURCE: Investing.com – Economy News   (go to source)
AUTHOR: Reuters
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