Russia Monetary Policy April 2024

Russia: Central Bank holds for third consecutive meeting in April

At its meeting on 26 April, the Central Bank of the Russian Federation (CBR) held its key policy rate at 16.00%. The decision, which had been priced in by markets, marked the third consecutive hold and followed a cumulative 850 basis points of hikes since July 2023.

The Bank determined that a longer-than-previously-expected period of tight monetary policy is required to consolidate the downward trend of inflation toward its 4.0% target. Price pressures gained momentum at the outset of 2024, hitting a 12-month high in February 2024 and remaining unchanged in March. The CBR noted that strong domestic demand and a strained labor market amid military mobilization efforts kept inflationary pressures elevated in Q1. In addition, inflation expectations among businesses rebounded in April after declining for several months, while the inflationary expectations of households remained high. Moreover, the CBR updated its forecasts for the year: The Bank ruled out the possibility of inflation returning to target in 2024, seeing it average 6.2–6.4% this year, while it raised its projection for economic growth by 150 basis points to 2.5–3.5%.

The CBR stated that it “will need to maintain tight monetary conditions for a longer period” to rein in inflation, forecasting that interest rates will average between 15.00–16.00% this year. Moreover, the Bank was more hawkish than in past months and, in a subsequent statement, Governor Elvira Nabiullina did not rule out a further hike this year if demand and price growth remain accelerated. The CBR also determined that risks to the inflation outlook are tilted to the upside, stemming from the fiscal policy normalization path and unfavorable exchange rate movements resulting from geopolitical tensions and international sanctions. Our Consensus is for the policy rate to be cut by close to 350 basis points by end-2024, with rate cuts largely expected to begin in H2 2024.

The next meeting is scheduled for 7 June.

On the outlook, JPMorgan’s Anatoliy Shal said:

“We now see the first cut in September instead of July and expect end-24 rate at 13.5% vs. 12.0% previously. With a more elevated rate profile we think distribution of risks around our growth and inflation forecasts has gotten more balanced (vs. skewed to upside previously).”

Goldman Sachs’ Clemens Grafe and Johan Allen commented:

“We now believe the CBR will remain on hold until Q4, when it will commence a careful cutting cycle, bringing the key rate to +15% by year-end. However, risks are skewed to the upside, and we do not discount the possibility of the CBR remaining on hold throughout the year if domestic demand and inflation continue to run hot.”

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