Monetary Policy of Russia September 2022

At its meeting on September 16, the Central Bank of the Russian Federation (CBR) cut the key interest rate by 50 basis points to 7.50%. The move is the sixth straight cut since the start of the war in late February. Notably, the Bank’s statement indicated that the easing cycle has now probably come to an end.

The bank’s move came against the backdrop of the continued decline in inflationary pressures and the contraction of economic activity. Inflation in August fell to 14.3% (July: 15.1%), and according to weekly data, it eased further in early September. This is mainly due to the elasticity of the ruble, weak consumer demand and oversupply of some goods amid export controls. Meanwhile, GDP is set to contract more sharply in the third quarter, amid a decline in household real incomes, and sanctions also undermining production capacities among manufacturers and service providers.

The bank’s official statement was notably less pessimistic in September, saying, “We believe we now have less room to cut the key rate.” On the other hand, the economy appears to hold up better in the third quarter than the central bank expected in July. On the other hand, inflation expectations remained high in August, while the monthly core inflation rate rose. As a result, the bank indicated its willingness to halt monetary easing and even hinted at a possible rate hike in the future.

The CBR expects inflation to ease to 12.0–13.0% in 2022, then to 5.0–7.0% in 2023, and return to the 4.0% target in 2024. Meanwhile, the bank expects GDP to shrink by 4.0–6.0% in 2022.

FocusEconomics committee members are currently revising their forecasts following the latest CBR move.

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *