Bank of Russia Raises Key Rate to 5.00% Amid Elevated Inflation Expectations
The Bank of Russia has increased its key rate by 50 basis points to 5.00%, citing elevated inflation expectations and a shift in the balance of risks towards pro-inflationary ones.
Reason for the Rate Hike
The bank’s latest monetary policy decision was influenced by:
- High consumer price growth rates and household and business inflation expectations
- A steady recovery of demand, with certain sectors exceeding their output expansion capacity
Revised Inflation Forecast
The Bank of Russia has revised its inflation forecast for 2021 upwards to 4.7-5.2%, with annual inflation expected to return to the bank’s target in mid-2022 and remain close to 4% further on.
Key Rate Decision Factors
The key rate decision will take into account:
- Actual and expected inflation dynamics relative to the target
- Economic developments over the forecast horizon
- Risks posed by domestic and external conditions
- The reaction of financial markets
Monetary Policy Guidelines for 2021-2023
The Bank of Russia has released its Monetary Policy Guidelines for 2021-2023, outlining three macroeconomic forecast scenarios:
- Sustainable recovery
- Long and unsustainable recovery
- Deep decline of potential
The bank’s inflation forecast varies across these scenarios, ranging from 4.7% in the pro-inflationary scenario to below target in the disinflationary scenario.
International Reserves
As of September 30, 2020, the Bank of Russia’s international reserves stood at $578.7 billion, up 51.7% from a year earlier. The share of gold in its foreign exchange and gold assets increased to 23.6%, while government securities of foreign issuers accounted for 36.8%.
The bank’s reserves are diversified across various asset classes, including:
- Government securities
- Deposits and account balances with foreign counterparties
- Non-government securities
- International organisation securities
- Reverse repo operations
- Claims on Russian counterparties
Financial Sector Overview
Russia’s financial sector has been showing signs of recovery, with the country’s economy slowly rebounding from the pandemic. The Bank of Russia has implemented various measures to support the sector, including lowering its key rate and providing liquidity injections.
The bank is closely monitoring the situation in the financial markets and stands ready to respond to any changes in the economic environment. The Russian government has also been taking steps to stimulate economic growth, including implementing fiscal policies and investing in infrastructure projects.
Conclusion
As Russia’s economy continues to recover from the pandemic, the Bank of Russia will remain vigilant in its monetary policy decisions, balancing the need to support economic growth with the need to maintain price stability.