Page 105 - RusRPTMay21

inflation up. Nabiullina, known as the world’s most conservative banker, will apparently continue to follow a very conservative policy by hiking a little early on to avoid bigger, more painful hikes later – hence the golden mean.
The CBR also signalled that it would continue to tighten over the rest of the year. The accompanying statement strengthened the central bank’s hawkish message about the need for further monetary tightening to bring inflation back to target.
“We expect a 25bp rate hike in June and another 25bp rate hike in the second half of this year,” Capital Economics said in a flash reaction to the announcement.
“We were among one of 13 analysts polled by Bloomberg that had expected a 50bp rate hike (28 other forecasters had expected a more modest 25bp hike),” said Capital Economics. “The central bank gave a strong signal at its meeting in March that it would tighten policy further against a backdrop of above-target inflation. Since then, the CBR’s concern about the inflation outlook has increased further.”
The CBR’s statement emphasised that the balance of risks has become more pro-inflationary due to a stronger-than-expected recovery in demand. The CBR revised up its end-year inflation forecast to 4.7-5.2% from 3.7-4.2% previously.
The statement reiterated that the central bank would consider the necessity of further interest rate hikes and that the strength of inflation calls for policy to return to a neutral stance (of 5-6%) earlier than had been anticipated.
The CBR’s new projections for the policy rate show interest rates averaging 5.3-6.3% in 2022, suggesting that a tighter policy stance is required to reduce inflation.
Russian Central Bank Chief Elvira Nabiullina does not rule out that the key rate will remain at 5% by the end of 2021, TASS informed. “Such a scenario is possible. All will depend on how the situation unfolds, which is why we provided a range of the average rate overall for 2021 and the end of 2021,” she told a press conference when asked a respective question. On April 23, the regulator started publishing an outlook on the trajectory of key rate changes, putting it on the list of other macroeconomic indicators. The key rate is expected to be in the range of 4.8-5.4% on average in 2021.
105 RUSSIA Country Report May 2021 www.intellinews.com