Investing.com — On Friday, Russia’s central bank announced that it will keep its primary interest rates steady at 21%. This move was unexpected, as the market had widely predicted another 200 basis point hike. The bank justified its decision by pointing to improved monetary conditions that could help control high inflation rates.
The bank’s statement revealed that monetary conditions have tightened to a greater extent than predicted by the key rate decision made in October. Factors contributing to this tightening were described as “autonomous” from the bank’s monetary policy.
The bank noted that the significant increase in borrowing rates and the slowing down of credit activity have created the conditions necessary for the resumption of disinflation processes. This could lead to a return to targeted inflation levels, despite the current high price growth and strong domestic demand.
In October, the bank had increased interest rates in an attempt to combat inflation, which had been fueled by the financial burden of Russia’s military intervention in Ukraine and the sanctions placed on its key commodity exports by Western countries.
The central bank stated that it will consider the need for a key rate increase at its next meeting in February. The bank currently projects that annual inflation will fall to 4% by 2026 and will remain at that level in the foreseeable future.
The current consumer price index in Russia is more than double this target. As of December 16, annual inflation was reported at 9.5%, with ongoing pressures particularly felt in the household and business sectors. The consumer price index increased to 8.9% in November on an annual basis, up from 8.5% in October. This increase was largely due to escalating food costs, with the price of milk and dairy products seeing a significant rise this year.
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