Key rate: why inflation is not decreasing in Russia

The Central Bank of the Russian Federation will not be able to reduce the key rate (currently 16%) due to the growth in lending, high business activity, as well as the growing shortage of personnel, which is pushing inflation up. This was reported to URA.RU by Ruslan Spinka, director of sales and customer service at the investment company Fontvielle.

“The Central Bank uses the key rate primarily as a tool to control inflation, that is, price growth. For Russia, a comfortable level is considered to be 4% per annum. However, current inflation is almost twice as high as the target and is at the level of 7.82% per annum according to the latest April data from Rosstat. The Bank of Russia will leave the key rate unchanged at the next meeting. In my opinion, as at the last March meeting, the decision will be made unanimously by all members of the Board of Directors,” said Ruslan Spinka.

This will happen due to still high risks for price growth. He named a number of factors supporting inflation:

• The lending sector is in no hurry to cool down: consumer lending in March showed an increase of 2% compared to February, corporate borrowing by 1.8%, mortgages by 1.2%, based on the Central Bank’s analysis.
• Business activity in the country remains at a consistently high level: the manufacturing activity index (PMI) is at 55.7 points, the service sector is at 51.4 points. Both indicators showed growth in March compared to February.
• The shortage of personnel in a favorable business climate is forcing wages up. Their growth in January-March 2024 was 12.7%, which is almost comparable to the results of the entire 2023.

According to the director of the sales and customer service department of the investment company, conditions for bank deposits may still change, even if the Central Bank does not reduce the key rate. “I would recommend paying attention not to the decision itself, but to the statements of the head of the Bank of Russia, Elvira Nabiullina, afterwards. Because both the stock market and banking products (savings accounts and deposits) react not to changes in the key rate, but to signals to ease the Central Bank’s policy. Unlike loans, by the way, the terms of which are revised after a real decision, and not based on expectations,” explained the agency’s interlocutor.

At the last meeting, the Central Bank decided to maintain the key rate at 16% per annum. The head of the Central Bank of the Russian Federation, Elvira Nabiullina, said that the peak of inflation in Russia is behind us. According to her, the Central Bank will begin to reduce the key rate only after it is convinced that the slowdown in inflation has gained the required speed. The next meeting will take place on April 26.

All the main news from Russia and the world – in one letter: subscribe to our newsletter!

By mail An email with a link has been sent. Follow it to complete the subscription procedure.

Close