The Russian central financial institution surprises the markets by sustaining its key price at 21%

The Russian central financial institution on Friday, in opposition to all expectations, left its key rates of interest unchanged at 21%, citing the strengthening of financial tightening which had created the situations needed to manage dizzying inflation.

“Financial situations have tightened extra considerably than anticipated from the October coverage price resolution,” the financial institution mentioned. saidnoting “autonomous” elements of its financial coverage.

“Given the notable enhance in rates of interest for debtors and the slowdown in credit score exercise, the tightening of financial situations creates the mandatory situations for the resumption of disinflation processes and the return of inflation to the target, regardless of the present robust value development and robust home demand,” he added.

Markets broadly anticipated the central financial institution to boost rates of interest by one other 200% on Friday, after taking such a step in October amid continued efforts to tame inflation fueled by army prices of Moscow’s invasion of Ukraine and Western sanctions in opposition to its primary commodity. exports.

The central financial institution mentioned on Friday it could assess the necessity for a coverage price hike at its subsequent assembly in February. It at present forecasts that annual inflation will decline to 4% in 2026 and can stay at this goal over the long run horizon.

Russia’s shopper value index is at present greater than double that price: annual inflation reached 9.5% as of December 16, the financial institution mentioned on Friday, noting persistent pressures, significantly within the family sectors and companies. The patron value index reached 8.9% in November on an annual foundation, in comparison with 8.5% in October. This enhance is essentially defined by the rise in meals costs, with the surge in the price of milk and dairy products This yr.

The maintain on rates of interest comes even after Russian President Vladimir Putin admitted throughout his annual question-and-answer session Thursday with Russian residents that the the country’s inflation was problematic and that there was proof of the economic system overheating. He nonetheless harassed that Russia might nonetheless obtain financial development of three.9 to 4% this yr.

“In fact, inflation is a really alarming sign. Simply yesterday, as I used to be getting ready for right now’s occasion, I spoke with the President of the Central Financial institution, Elvira. [Nabiullina] who informed me it was already round 9.3%. However wages have elevated by 9% in actual phrases, I wish to emphasize that – in actual phrases minus inflation – and the disposable revenue of the inhabitants has additionally elevated,” he mentioned, in line with feedback reported by Interfax and translated by Google.

The Worldwide Financial Fund initiatives that Russia will develop 3.6% this yr, earlier than decelerating to 1.3% in 2025.

The “sharp slowdown,” the IMF mentioned, was seen “in opposition to a backdrop of slowing non-public consumption and funding amid much less labor market pressure and slower wage development.”

“What we’re at present seeing within the Russian economic system, [is] that it fights in opposition to capability constraints”, Alfred Kammer, director of the European division of the IMF, said when the fund released its latest economic outlook in October.

“So now we have a optimistic output hole, or you can put it one other manner: the Russian economic system is overheating. What we anticipate for subsequent yr is solely additionally the impression that you simply will be unable to maintain very lengthy when you exceed your provide capability “We see an impression on the transition to a extra regular territory there. And naturally, that is supported by a good financial coverage of the Central Financial institution of Russia,” he mentioned.

“Tight financial coverage, aimed toward reducing inflation, slows down combination demand and can have these results on GDP in 2025. This is the reason we’re seeing a slowdown in 2025,” Kammer added.