Page 123 - RusRPTMar23

8.2 Central Bank policy rate
Russia’s central bank (CBR) left rates on hold at 7.50% on February 9 but its communications were far more hawkish than expected as it talked about a further build-up of inflation risks and the possibility of hiking interest rates. Risks are skewed in this direction and at least a 50bp rate hike now looks likely in Q2 to 8%, according to Capital Economics.
“Today’s decision was expected by all analysts and marks the third consecutive meeting at which rates were left unchanged. But the tone of the communications was decidedly hawkish. In December the central bank said that “short-term pro-inflation risks have increased and prevail over disinflation risks” but today the CBR strengthened its assessment as it said that pro- inflation risks have intensified due to “accelerating fiscal spending, deteriorating terms of foreign trade and the situation in the labour market”,” Capital Economics says.
Government expenditure has surged by around 2% of GDP in the last three months alone. The statement said that “in the case of a further budget deficit expansion, pro-inflation risks will rise and a tighter monetary policy may be required to return inflation to target in 2024”.
The CBR also remains concerned about labour shortages as a result of the mobilisation of military reservists last September. The data are volatile, but nominal wages are rising by around 12% y/y, a growth rate last seen on a sustained basis in 2013.
“All of this seems to be offsetting some actually quite favourable inflation developments, including a fall in the headline inflation rate to 11.9% y/y in December and a decline in households’ inflation expectations to a seven- month low in January,” Capital Economics said.
In its Monetary Policy Report the CBR left its end-2023 inflation forecast unchanged at 5-7% y/y. But the CBR clearly takes its commitment to fighting inflation seriously and its forward guidance said that “if pro-inflation risks intensify, the Bank of Russia will consider the necessity of key rate increase at its upcoming meetings”.
The Central Bank of Russia (CBR) is under pressure from the Russian government to be more “upbeat” about the economy, Bloomberg reported. Government officials told the Bank to release more optimistic forecasts and to hint that interest rates will come down later this year, according to anonymous sources. Prime Minister Mikhail Mishustin’s press secretary, Boris Belyakov, refuted this claim, calling it “untrue” and “speculation to influence the development of the economy.” Whether or not she is facing pressure from the government, Central Bank Governor Elvira Nabiullina remains concerned about the risk of rising inflation. Nabiullina remarked that while she does not rule out the possibility of a rate cut this year,
123 RUSSIA Country Report March 2023 www.intellinews.com