Russia Monetary Policy February 2024

Russia: Central Bank holds key policy rate stable in February

At its first meeting of 2024 on 16 February, the Central Bank of the Russian Federation (CBR) held its key policy rate at 16.00%. The move, which was largely in line with market analysts’ expectations, followed five consecutive raises in borrowing costs and a cumulative 850 basis points of hikes since July.

The CBR’s decision to keep its policy rate at the over-one-decade high level was a cautious move; the Bank noted that price pressures eased early in 2024 compared to H2 2023, but risks to the outlook remained skewed to the upside. After ticking down to 7.4% in December (November 7.5%), inflation remained stable in January. A still-weak ruble, booming government spending and a strained labor market amid military mobilization efforts have kept inflationary pressures high in recent months. Meanwhile, GDP growth in 2023 outperformed the Bank’s forecast, further stimulating price pressures. That said, inflation expectations among households and businesses eased at the outset of 2024.

The CBR’s communiqué was void of explicit forward guidance. However, the Bank reiterated that “tight monetary conditions will be maintained in the economy for a long period” in order to anchor the downward path of inflation towards the 4.0% target. This comes against the backdrop of elevated pro-inflationary risks—especially unfavorable exchange rate movements as a result of geopolitical tensions and international sanctions—and the normalization of fiscal policy. That said, our panel expects the CRB to kick off its easing cycle as early as Q2 and forecasts up to 700 basis points of cuts by end-2024.

The next meeting is scheduled for 22 March.

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