Russia Monetary Policy October 2022

Russia: Central Bank keeps key policy rate stable in October

At its meeting on 28 October, the Central Bank of the Russian Federation (CBR) kept its key policy rate stable at 7.50%. This marked the first hold after six consecutive rate cuts between March and September and was in line with the expectations of most analysts.

The Banks move came amid rising geopolitical uncertainty and as the economy contracted in Q3 due to the war in Ukraine. The partial mobilization boosted inflation risks in the longer term, although in the short term it could lead to a negative demand shock that would help to keep a lid on inflation. This comes amid a pick-up in households inflation expectations in recent months. Rising inflationary risks seem to have overshadowed concerns regarding the contracting economy.

The Bank struck a relatively neutral tone in its communique, saying that future monetary policy decisions would depend on “actual and expected inflation movements relative to the target, the process of the structural transformation of the economy, as well as assessing risks from internal and external conditions and financial markets response to these risks.”

Meanwhile, the CBR revised its year-end inflation forecast to 12.0%-13.0% from 11.0%-13.0%, but it left estimates for 2023 unchanged at 5.0%-7.0%. The Bank slashed its estimate of real GDP contraction from 6.0%-4.0% to 3.5%-3.0% in 2022, but it made no changes to its 2023 projections. Lastly, the CBR left its policy rate forecast unchanged at a range of 6.50%-8.50% in 2023 and 6.00%-7.00% in 2024.

Commenting on the monetary policy outlook, Artem Arkhipov, economist at UniCredit, said:

“We think the cut it implemented at its [previous] meeting was the last before a prolonged period of unchanged policy […] The period of abnormally low monthly inflation is almost over […] In seasonally adjusted period-on-period terms, inflation is likely to remain above target for the next several quarters, especially given the inflationary risks from growth in fiscal spending and looming regulated tariff increases later this year and in 2023. Thus, we expect the CBR to hold the key rate in restrictive territory, above the former neutral bank rate of 5-6%.”

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