The Central bank keeps its key rate unchanged

RUSSIA ECONOMICS - In Brief 10 Feb 2023 by Alexander Kudrin

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The Central bank announced that the BoD decided to keep the key rate at 7.5%, having quoted that the economic situation currently looks better, and pro-inflationary risks remain relatively high. The CBR estimated that the Russian GDP was down by 2.5% in 2022, which encouraged the regulator to upgrade the 2023 outlook. CBR now expects the range for 2023 GDP change to be from -1.0% to +1.0%. Household consumption and investment in production capacity will grow from 0.0% to 2.0% and 0.5% to 3.5% accordingly. The regulator expects inflation to stay within the 5.0%-7.0% range (in average annual terms), and it hinted that due to still high pro-inflationary risks, its policy rate could stay within 7.0%-9.0% in annual average terms, i.e., slightly higher than it considered previously. Main pro-inflationary risks originate from increased budgetary spending, the tight situation on the labor market, and a likely recovery on the consumer market (and a lower propensity to save). The CBR also mentioned additional sanctions among risks which may keep inflation elevated. As the Russian government announced it would cut oil production by 500 mln bbl/day from March 1, this decision might affect the global energy market, but it is not yet clear what impact it may cause. As the Russian current account surplus is shrinking (yesterday, CBR reported that in January 2023, it contracted to $8.0 bn while in January 2022, it was at $19.1 bn), the ruble is likely to continue weakening, and the passthrough effect may also help to keep inflation elevated. Meanwhile, the goods and services balance shrank in January to $9.0 bn (from $21.1 bn a year ago). Hence, the CBR’s cautious decision to keep the...