The Board of Directors of the Bank of Russia at its meeting today raised the key rate by 0.5 percentage points, the press service of the regulator said. Now the figure is 5.5% per annum, which is the highest value since June 18 last year.
The Central Bank immediately increased the rate by 0.5 percentage points. the second time in a row. At the previous meeting on April 23, the board of directors made a similar decision, and such a step was taken for the first time since December 2014. At the meeting on March 19, the regulator raised the rate by 0.25 percentage points. The increase was made for the first time since December 2018. Previously, the key rate was at a historic low of 4.25% per annum.
Central Bank Chairman Elvira Nabiullina warned earlier that the key rate would be increased at today’s meeting. Then she noted that different step sizes are being considered, explaining that a specific decision depends on an assessment of inflation dynamics, inflation forecasts, economic development and the pace of its recovery.
According to the Central Bank, inflationary expectations of the population are now at a four-year high. This leads to the fact that citizens make large purchases earlier than originally planned, thereby increasing the already high rates of price growth. So, on June 7, Rosstat reported that for the first time in five years, annual inflation in Russia exceeded 6%: it rose to 6.02% in May. At the same time, food products rose in price by 7.4%, and non-food products – by 6.68%.
During the St. Petersburg International Economic Forum (SPIEF), Nabiullina said that the increased inflation in the country, which has been observed since the end of last year, has become stable. It has significantly moved away from the 4% target set by the Central Bank. This was the reason for the beginning of the return of the regulator to a neutral monetary policy. “The delay would lead to the fact that we would later have to raise rates even higher and faster,” – explained the head of the Central Bank.
On the eve of today’s meeting on the key rate, analysts surveyed by Vedomosti agreed that due to accelerated inflation, the regulator will raise the key rate by 0.5 percentage points. In addition, Igor Rapokhin, senior strategist for the debt market of SberCIB Investment Research, expressed the opinion that at a meeting on July 23, the Central Bank will return the rate to 6% per annum – this was the case in April last year, in the midst of the first wave of the coronavirus pandemic and the action of severe restrictions in the country. …
Nabiullina ruled out that the increase in the key rate would negatively affect the growth of the Russian economy. According to the current forecast of the Ministry of Economic Development, the country’s GDP will grow by 2.9% this year. At the same time, the Central Bank’s policy was supported by Finance Minister Anton Siluanov. He pointed to the risks of “overheating” the economy and noted that “the further we delay, the more difficult it will be to get out of the super-soft policy – budgetary and monetary.”