Russia’s Central Bank maintained a 7.5% key interest rate

Russia’s central bank kept the key interest rate at 7.5 percent, curbing the need to raise interest rates to curb inflation.

At the same time, it lowered the inflation forecast at the end of this year by 50 basis points and improved the GDP estimate, reports Reuters.

The Russian central bank had a series of interest rate cuts last year following Russia’s decision to dispatch tens of thousands of troops to Ukraine, which prompted the West to set embargoes on Moscow.

It has kept rates at 7.5 percent since its last cut in September. Still, it has taken a “hawkish stance,” suggesting inflationary threats due to high and misaligned inflation anticipations, influential labor shortages, and the country’s large budget deficit.

The bank announced that it will consider increasing the key rate to stabilize inflation by close to four percent in the next meetings in 2024.

Annual inflation, which reached a more than two-decade high in 2022, slowed to 2.55 percent as of April 24, after last year’s base effect prevailed. This year, it is expected to rise again above the bank’s four percent target.

Lowered inflation forecast

The Bank of Russia reduced its year-end inflation projection to 4.5 to 6.5 percent from five to seven percent. It enhanced its assessment of Russia’s economic growth to a range of 0.5 to 2.0 percent from a maximum of one percent, as was foreseen.

The International Monetary Fund also forecasts economic growth for Russia in 2023 after a 2.1 percent decline last year.