The Central Bank raised the key rate to 19 percent per annum
Following the meeting of the board of directors on Friday, September 13, the Bank of Russia decided to raise the key rate to 19 percent per annum. This is stated in message on the regulator’s website.
The main reason for tightening monetary policy (MP) was the persistent high inflationary pressure, which most likely rules out keeping inflation below seven percent by the end of the year, as expected in the July forecast. Domestic demand growth continues to significantly outpace the ability to expand the supply of goods and services.
At the same time, the labor market remains tough. Against this background, the Central Bank does not rule out a new rate hike in October. Since Elvira Nabiullina took over as head of the regulator in 2013, such signals have always led to movement in the indicated direction.
On the eve of the meeting, analysts and market participants differed in their assessments of the Central Bank’s actions. Forecasts ranged from keeping the rate at 18 percent to increasing it by two percentage points. The main reason for doubts was contradictory statistics.
Signals of a cooling economy have not yet led to a slowdown in inflation and inflation expectations; on the contrary, in August and September, prices grew much faster than forecasts. On the other hand, too sharp an increase in the rate could be a serious blow to the economy and lead to additional budget expenditures, which would also accelerate inflation.
The Central Bank acknowledged some slowdown in economic growth in the second quarter, but suggested that it was not due to cooling domestic demand, but to increasing supply-side constraints and a decline in external demand. Thus, the deviation from the balanced growth trajectory remains significant.
The European Central Bank (ECB) cut all three key interest rates yesterday. The easing cycle is linked to stabilizing inflation and improving economic conditions in the region.
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