By Swann Collins, investor and consultant in global affairs. Eurasia Business News – October 23, 2021
A press release from the Russia’s Central bank announved that the key rate is now 7.5 percent per annum. This level of key rate was already reached in summer of 2019.
“The Board of Directors of the Bank of Russia decided on October 22, 2021 to raise the key rate by 75 basis points”.
Elvira Nabiullina, the Governor of the Bank of Russia, stated that this new key rate is justified not only by the dynamics of current inflation, but above all by high inflationary expectations and a significant revision of the forecast compared to July.
The central banker added that inflation will start to decline from a higher point than expected and that “this requires more tightening of monetary policy than planned in the July forecast and expected in September.”
Inflation is now expected to be in the range of 7.4-7.9 percent by December. The Russian Central Bank does not exclude the possibility of an additional increase in the key rate in the near future.
Forecast of the head of the Central Bank
The Governor Elvira Nabiullina said during the press conference that earlier the Bank of Russia considered, among other things, the option of raising the key rate by one percent (100 basis points).The chairman of the Central Bank clarified that in December there may be an increase in the indicator by 100 basis points at once.
Nabiullina predicts that the key rate will return to its long-term neutral range – 5.5 / 6.5 percent – no earlier than mid-2023.
Key rate hike targets
The increase in the key rate aims to reduce inflation and strengthen the national currency. Such a decision by the Bank of Russia may cause an increase in interest on loans and deposits.Key rate – the minimum interest rate at which the Central Bank provides loans to commercial financial institutions for a week. According to it, the regulator is ready to accept funds for deposits. As part of the transition to an inflation targeting regime, this monetary policy instrument was introduced in September 2013. The main goal is to increase transparency.
Central Bank actions during the year
Last spring, the Russian central bank began to normalize its monetary policy by increasing the key rate. At first, it increased from 4.25 to 4.5 percent per annum, and after two more increases by 0.5 percentage points it reached 5.5 percent. In July, the central bank raised the rate by an entire point – up to 6.5 percent. The trend continued in September – plus 0.25.
The growth of the key rate in 2021 :
at the meeting on March 19, it rose by 25 basis points, to 4.5%;
April 23 – by 50 basis points, up to 5%;
June 11 – also 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% ;
October 22 – by 75 basis points, up to 7.5%.
The Russian Ministry of Economic Development has already worsened its inflation forecasts . According to his expectations, the rate of price growth by the end of 2021 would be 5.8 percent.
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© Copyright 2021 – Swann Collins, investor and consultant in global affairs.