ING says Russia reiterates commitment to inflation targeting despite shocks
The Central Bank of Russia (CBR), in its first scheduled meeting since the attack on Ukraine, kept its key interest rate high at 20% on Friday, citing inflation risks and saying added that fiscal expansion is a tool to support the economy. necessary.
In a move that emerged shortly after Moscow called “a special operation in Ukraine” on February 24, Russia’s central bank raised interest rates from 9.5% to 20% and officials Russia has announced capital controls to help with financial stability.
“The Central Bank of Russia kept its key interest rate at 20%, citing inflation risks, and treating the budget as a tool to support economic growth. Combined with the president’s support for a realignment Her post as CBR governor (Elvira Sakhipzadovna) Nabiullina and the warning of Dmitry Dolgin, Chief Russia Economist at ING, said Russia’s commitment to inflation targeting appears to be intact. .
“Today’s decision to keep the prime rate at 20% is not surprising and in line with our expectations, as the emergency hike two weeks ago was foreshadowing enough. The rate hike Current fundamentals would signal more anxiety to the market, while the cuts would contradict the logic of inflation targeting,” he added.
Russia’s central bank, in its statement, said an emergency increase in the prime rate to more than double had “helped to maintain financial stability” but warned that the economy was experiencing a “severe slowdown”. large-scale structural transformation.”
The CBR statement added that fiscal policy decisions will broadly impact economic activity and inflation dynamics.
“This means that the CBR expects fiscal easing to be the main economic support tool in the coming months,” said Mr. Dolgin of ING.
“While the central bank’s statement lacks any detailed quantitative assessment of the economic situation in Russia, we believe the text as a whole implies the CBR’s agreement with the consensus forecasts of the economists. analysis polled by CBR on March 10. Poll results show that the CPI in 2022 is 20 key rates unchanged until year-end, GDP down 8% amid a 10% drop in real wages, followed by an ‘L-shaped’ recovery, USDRUB (rouble) around $110 with further downside,” he said.
In addition to geopolitics and monetary policy, “important factors to watch for the Russian economy going forward include the current account, capital outflows and repatriation, and fiscal policy.” “, added Mr. Dolgin.
