By Clement Bigot, consultant in international affairs, for Eurasia Business News – September 11, 2021

The Board of Directors of the Bank of Russia on September 10 decided to raise the key rate by 25 basis points, to 6.75% per annum, choosing a short step contrary to analysts’ expectations.

The majority of analysts expected the Russian Central Bank rate to rise by 50 basis points but some economists allowed a 25 bp step.

In the second quarter of 2021, the Russian economy reached a pre-pandemic level and, according to the Bank of Russia estimates, and is returning to a trajectory of balanced growth“, stated on Friday the Central Bank of the Russian Federation.

In these conditions and taking into account high inflationary expectations, the balance of risks for inflation is shifted towards pro-inflationary ones. This may lead to a longer deviation of inflation from the target. The monetary policy pursued by the Bank of Russia is aimed at limiting this risk and bringing inflation back to 4%“, reported the press release.

If the situation develops in accordance with the baseline forecast, the Bank of Russia admits the possibility of further increases in the key rate at the next meetings, announced the Russian regulator.

Decisions on the key rate will be made taking into account the actual and expected dynamics of inflation relative to the target, the development of the economy over the forecast horizon, as well as the assessment of risks from internal and external conditions and the reaction of financial markets to them,” the Central Bank said in the statement released on Septmber 10.

Inflation is growing above the forecast of the Bank of Russia. Monthly, seasonally adjusted consumer price growth rebounded in August after a slowdown in July. Annual inflation increased to 6.68% (after 6.46% in July) and, as of September 6, amounted to 6.74%. The indicators reflecting the most stable processes of price dynamics, according to the Bank of Russia estimates, continue to be significantly above 4% in annual terms.

The Bank of Russia predicts that annual inflation will begin to slow down in the fourth quarter of this year. “Taking into account the ongoing monetary policy, annual inflation will decrease to 4.0-4.5% in 2022 and in the future will be close to 4%,” the Central Bank said.

The Central Bank of the Russian Federation raised the key rate at once by 100 bp. last july – up to 6.5%, and made the a statement that “if the situation develops in accordance with the baseline forecast, the Bank of Russia will assess the feasibility of further increasing the key rate at the next meetings.”

The key rate in the future may exceed 7%, said the head of the Central Bank Elvira Nabiullina at a briefing on Friday September 10.

We do not predict possible peaks, we are adjusting monetary policy so as to achieve its goal and return inflation to a stable level of 4%. that the key rate may turn out to be higher than 7%” Nabiullina said.

The Russian Central Bank raises its key rate for the fifth time in a row. Last time it increased in July by 1 percentage point at once, to 6.5% per annum. This was the most significant increase since December 2014. 

The growth of the key rate in 2021 :

March 19 – by 25 basis points, to 4.5%;
April 23 – by 50 basis points, up to 5%;
June 11 – by 50 basis points, up to 5.5%;
July 23 – by 100 basis points, up to 6.5% ;

September 10 – by 25 basis points, up to 6.75%.

The next meeting of the Board of Directors of the Bank of Russia at the key rate will be held on October 22.

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