Russia’s Central Bank Takes a Leap: Key Rate Shoots to 15%

Russia’s Central Bank has made headlines again with its latest move to set the key rate at an imposing 15%. This significant jump from 13% was finalized on October 27 during the board of directors’ scheduled discussion.

This decision isn’t one for the short-term. The bank has already laid out plans for a subsequent review on December 15, 2023. During this, the dynamics of actual and forecasted inflation, economic developments, potential risks from both domestic and international scenarios, and the financial market’s reaction to these factors will all be on the agenda.

What’s driving this uptick?

The Central Bank pinpoints escalating inflationary pressures which currently surpass their expectations. There’s a rising mismatch – the growth in domestic demand is outstripping the capacity to enhance the production of goods and services. They also emphasize the high lending rates and argue that in order to bring inflation back down to their 4% target by 2024, a more stringent monetary policy is essential.

By pushing the key rate to 15%, the bank believes it’s paving the way for a balanced credit growth and ensuring a stable economic trend that focuses on disinflation.

A peek into recent history reveals the bank’s strategic maneuvers. After enjoying a calm phase at 7.5% for nearly a year, the Central Bank initiated rate hikes in mid-summer. From a 7.5% starting point in September 2022, we saw a sequential hike reaching 13% in September 2023.

Diving even further back, the bank’s most aggressive stance was at 20% – a measure implemented post a significant military operation. From there, it underwent a series of reductions, reaching a plateau at 7.5% by summer.

For those keen on tracking the key rate’s journey, here’s a brief timeline from 2022:

• Feb 28, 2022: 9.5% skyrockets to 20%
• April 11, 2022: 20% drops to 17%
• April 29, 2022: 17% recedes to 14%
• May 27, 2022: 14% trims to 11%
• June 10, 2022: 11% narrows down to 9.5%
• July 21, 2022: 9.5% dips to 8%
• September 16, 2022: 8% to 7.5%
• July 21, 2023: 7.5% climbs to 8.5%
• August 15, 2023: 8.5% shoots to 12%
• September 15, 2023: 12% rises to 13%