Russian Central Bank holds interest rates amid inflation worries
The central bank of Russia has decided to maintain the main interest rate at 21 per cent. This marks the second consecutive decision to keep rates unchanged, following the October hike to a record level. The bank warns of persistent inflationary pressure and has increased inflation forecasts for the coming years.
During the Friday meeting, the Russian central bank left the main interest rate at 21 per cent. This rate is the highest in history, set during the October hike. The bank emphasises that inflationary pressure remains high, and medium-term inflation risks continue to rise.
The monetary authorities have significantly revised their inflation forecasts. The bank now expects inflation in 2025 to range from 7 to 8 per cent, marking a significant increase from previous estimates of 4.5-5 per cent. A return to the inflation target of 4 per cent is not expected until 2026.
The impact of sanctions and war expenditures
Inflation in Russia has remained unstable since the beginning of the invasion of Ukraine in February 2022. Contributing factors include Western sanctions and remedial measures taken by the authorities to stabilise the economy. Additional inflationary pressure is generated by the increase in arms spending related to conducting military operations.
According to central bank data, the annual inflation rate as of 10 February was 10 per cent, after a slight decline between December and January. The bank notes that future decisions on interest rates will depend on the speed and sustainability of the inflation decline.
Market reactions and expert opinions
Sofia Donets, chief economist at T-Investments, points out that the bank's decision may signal a greater tolerance for inflation above the 4 per cent target this year. However, she does not rule out the possibility of further interest rate hikes. In her opinion, the central bank does not wish markets to become too optimistic about the prospects of long-term rate cuts.
In response to the interest rate decision, the Moscow stock index rose by 0.86 per cent. The ruble's exchange rate against the dollar was 91. The next meeting of the Russian central bank on interest rates is scheduled for 21 March.
