On 22 March 2024, the Bank of Russia Board of Directors decided to keep the key rate at 16.00% per annum. Current inflationary pressures are gradually easing but remain high. Domestic demand is still outstripping the capabilities to expand the production of goods and services. Labour market tightness has increased again. For the moment, it is premature to judge the pace of future disinflationary trends. The Bank of Russia’s monetary policy is set to solidify disinflation processes unfolding in the national economy.
The return of inflation to target in 2024 and its further stabilisation close to 4% assume that tight monetary conditions will be maintained in the economy for a long period. According to the Bank of Russia’s forecast and given the monetary policy stance, annual inflation will decline to
Current seasonally adjusted price growth in February remained at its January level but, according to preliminary data, is declining in March. The consumer price index has shown diverging trends in terms of components: a notable slowdown in goods price growth came with an acceleration in services price growth. As of 18 March, annual inflation remains at its February level of 7.7%.
Despite tightening monetary conditions, inflationary pressures remain elevated on the back of high domestic demand. Most measures of underlying current price growth, according to the Bank of Russia’s estimates, are in the
Households’ inflation expectations and businesses’ price expectations have continued to decline. However, they remain elevated. This determines the inertia of current high price growth.
High-frequency indicators show that the Russian economy continues to grow rapidly in 2024 Q1. Consumer activity remains high amid a significant increase in household incomes and positive consumer sentiment. According to companies’ surveys, investment demand remains high. The Russian economy still shows a significant upward deviation from a balanced growth path.
Labour shortages come as the key constraint on the expansion of output of goods and services. Concurrently, labour market tightness has increased again. Unemployment has dropped to an all-time low.
Monetary conditions are tightening following the increase in the key rate in 2023 H2. A rise in nominal and real interest rates is continued in various segments of the financial market. The inflow of household funds into time deposits holds steady. Since the beginning of the year, corporate and mortgage lending have grown at a slower pace. However, in the retail sector, unsecured consumer lending has accelerated. Higher incomes allow households to simultaneously increase savings and consumption. The effects of prior key rate rises on lending are expected to strengthen in the next few months. Bank lending conditions will additionally tighten as a result of a number of macroprudential measures and the rollback of most regulatory relaxations for banks.
Over the medium term, the balance of inflation risks is still tilted to the upside. The main proinflationary risks are associated with changes in terms of trade (including as a result of the geopolitical tensions), persistently high inflation expectations, and higher upward deviation of the Russian economy from a balanced growth path, as well as with a fiscal policy normalisation path. Disinflationary risks are primarily related to domestic demand slowing down faster than expected in the baseline scenario.
On 1 April 2024, the Bank of Russia will publish the Summary of the Key Rate Discussion.
The Bank of Russia Board of Directors will hold its next key rate review meeting on 26 April 2024. The press release on the Bank of Russia Board decision and the medium-term forecast are to be published at 13.30 Moscow time.
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