Russian Ruble: CBR Expectedly Keeps its Key Rate Unchanged at 16 Percent; No Rate Cut Anytime Soon

According to the Central Bank of Russia, inflation is gradually easing, but remains high. Due to increased domestic demand, prices are falling slower than the Bank of Russia forecasted. Therefore, the rate will remain at the current level until the end of 2024, and will fall to 10%-12% in 2025.

Russia’s annual inflation now remains high at 7.8%. The Russian economy continues to perform well. The recent stats show that consumer activity is sound, and household incomes are increasing. Operational indicators indicate that the Russian economy continues to grow markedly faster than forecast in Q1 2024. Data from business surveys indicate that investment demand also remains strong. The upward deviation of the Russian economy from the balanced growth trajectory remains significant. The forecast for GDP growth in 2024 has been upward revised to 2.5%-3.5%.

Meanwhile, the problem with labor shortages persists (a known phenomenon of a wartime economy). Although unemployment is at historical lows, there are still not enough people to fill all job openings.

The return of inflation to the target and its further stabilization near 4% imply a longer period of maintaining tight monetary policy than previously expected. Shares of real estate developers and high-tech companies will apparently be under downgrade revision by many local banks and brokerages.

In the baseline scenario, the Bank of Russia raised its forecast for the expected key interest rate in 2024 and 2025 to 15 –16.% and 10 — 12%, respectively.