Page 97 - RusRPTJul21

8.2 Central Bank policy rate
On June 11, the Central Bank of Russia (CBR) raised its key rate by 50 basis points to 5.5%. It was the CBR’s third hike this year for a total increase of 125 basis points. As part of its guidance, the central bank noted that a further hike in the key rate is possible at its next inflation meetings.
The CBR said the hike was mainly a reflection of rising 12-month inflation faster than forecasted. Consumer prices rose last month by 6% y/y. May food prices rose by 7.4% y/y, non-food goods by 6.7% and services by 3.3%.
Inflation has picked up steam due to such factors as the recovery in domestic demand from last spring’s Covid Recession and rising commodity prices on the global market. Moreover, short-term inflation expectations of households and corporations are still elevated. The government has sought to curb the rise in consumer prices by implementing price control measures.
The CBR expects 12-month inflation to remain below its current level, but exceed its April forecast (4.7–5.2% at the end of 2021). It also expects to reach its inflation target of 4% a year by the second half of 2022 (earlier by mid-2022). Thereafter, it expects 12-month inflation to remain close to the inflation target.
The Bank of Russia in July may consider raising the key rate in increments from 0.25 to 1 percentage point, said the head of the bank Elvira Nabiullina. Since the beginning of spring, the Bank of Russia has raised its key rate following the results of already three meetings – in aggregate by 1.25 percentage points, to 5.5% per annum. At the same time, in June, the regulator tightened the signal regarding a further increase, noting that it sees the need for such a step at the next meetings. “I think we can discuss from 25 basis points to 1 percentage point hike ... At the last meeting, we signaled to the market that a rate hike in the future is necessary, but the size will be discussed at this meeting. I think the range is, yes,” she said in an interview with Bloomberg. Thus, the rate in July may range from 5.75 to 6.5% per annum.
97 RUSSIA Country Report July 2021 www.intellinews.com