By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News, March 18, 2022
The Board of Directors of the Bank of Russia on Friday, March 18, decided to keep the key rate at 20% per annum, announced the regulator in a statement.
This decision was expected by most analysts. Only a few experts have thought that the Russian central bank could raise the rate to 23-25%, to fight high inflation amid massive Western economic sanctions.
The Bank of Russia considers that the sharp increase of its key rate on February 28 to 20% against the backdrop of radically changed external conditions “supported financial stability and prevented an uncontrolled rise in prices.”
The central bank added that :
“The Russian economy is entering a phase of massive structural adjustment that will be accompanied by a temporary but inevitable period of elevated inflation, largely related to the adjustment of relative prices for a wide range of goods and services. The monetary policy pursued by the Bank of Russia will create conditions for the economy to gradually adapt to new conditions and return annual inflation to 4% in 2024.“
In the future, the Bank of Russia intends to make decisions on the key rate “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 assessing the risks from internal and external conditions and the reaction of financial markets to them“, reported the press release.
The next meeting of the Board of Directors of the Bank of Russia, which will consider the issue of the key rate level, is scheduled for April 29.
The Central Bank of the Russian Federation urgently raised the key rate from 9.5% immediately to 20%, after an extraordinary meeting on February 28.
“Raising the key rate will make it possible to ensure an increase in deposit rates to the levels necessary to compensate for the increased devaluation and inflation risks. This will help maintain financial and price stability and protect citizens’ savings from depreciation,” the Bank of Russia said at the time.
Inflation in Russia in 2022 will be +20% and should decrease to +8% in 2023, according to the Macroeconomic Survey of the Bank of Russia. Analysts surveyed by the Russian central bank expect that the national GDP could decrease by 8% by the end of 2022, but in 2023 it would grow by 1%.
Earlier, the Bank of Russia expected that by the end of 2022, annual inflation would be +4.0-4.5%, after the peak of +8.73% in January 2022. However, for the only week from February 26 to March 4, inflation in Russia accelerated by 2.2%, amounting to an annual inflation of +10%. This sharp increase over the week is the direct result of the strong Western economic sanctions imposed against Russia in response to the military operation in Ukraine. According to analysts, in 2023 inflation would be at +8% and would lower in 2024 to +4.8%.
Over the past three weeks, the Russian central bank took unprecedented measures. After the +10.5% key rate increase, it imposed restrictions from March 9 to September 9 for withdrawal of foreign currencies from banking accounts from Russian citizens. Withdrawals amounting to more than $ 10 thousand in foreign cash currency are banned. This measure is an attempt to keep hard currency in the Russian economy, as the ruble is falling and the Western economic sanctions puts great pressure on the growth domestic product.
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The restrictive measures against the use of foreign currency in Russia should boost the local demand for gold and silver, as Russian citizens will worry to see their savings and puchasing power be destroyed by high inflation and ban on purchase of US dollars and euros.
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