Russian Ruble: CBR Surprisingly Stayed Pat

Russia’s Central Bank decided to put a brake on raising the key rate “to assess the adjustment of the economy to new conditions” and kept the key rate at the same high level of 21%, CBR’s governor Nabiullina was quoted as saying. All current market movements have more psychological than materially justified root causes.

The head of CBR also said that a long period of tight monetary policy will be required and admitted that there have been more significant monetary tightening conditions than initially expected. The Central Bank will consider whether to raise the rate further at its next meeting based on the incoming data. Russia’s financial regulator also promised to keep aiding in increasing capital and liquidity requirements for banks. These decisions will not be commensurate with the dynamics of the key interest rate.

In fact, inflation remains at peak levels in the Russian Federation. As of November, the officially published CPI amounted to 1.43% MoM, while annual inflation accelerated to 8.88% — showing unprecedented levels. CBR’s Nabiullina has been harshly criticized in recent months by parliamentarians and many prominent economists like academician Sergei Glazyev. In the latest episode, a very unflattering criticism was voiced in Parliament by MP Sergei Mironov.

The previous argumentation of the Central Bank that by raising the refinancing rate, the regulator effectively fights inflation and achieves success — does not find actual evidence. So the decision to keep interest rates unchanged can only be welcomed. CBR is apparently facing a new reality where its basic art is to adjust decisions depending on the observed data and refrain from following any predetermined interdependencies and conventional patterns.