The Bank of Russia (CBR) Expectedly Kept its Key Rate at 16 Percent. Ruble Further Tumbled to 92.82/USD

The Bank of Russia (CBR) expectedly kept the key rate at 16% as Russia’s ruble has become one of the three worst performing global currencies in 2023.

Meanwhile, CBR projects annual inflation to drop to 4%–4.5% “we expect it already this year, and it will be near 4% thereafter”.

Head of CBR Elvira Nabiullina stated, that inflation expectations of households and businesses have declined since the beginning of this year, approaching Q3 2023 levels. However, they still remain at elevated levels. She also quoted the widening labor shortages as the main constraint to the expansion of output of goods and services.

The accompanying statement says that “…current inflationary pressures have eased compared to the fall 2023 months, but still remain elevated. Domestic demand continues to significantly outpace the ability to expand production of goods and services. It is premature to judge about the sustainability of the emerging disinflationary trends. The ongoing monetary policy will consolidate the process of disinflation in the economy.”

And furthermore: “… the return of inflation to the target in 2024 and its further stabilization near 4% presuppose a prolonged period of maintaining tight monetary conditions in the economy. According to our forecast, taking into account the ongoing monetary policy, annual inflation will decline to 4.0–4.5% in 2024 and will remain near 4% thereafter.”

All in all, the Central Bank's rhetoric was largely viewed as neutral, as it’s apparently not going to raise the rate again anytime soon, but it is in no hurry to lower it either. In general, higher interest rates will prevail for a prolonged time.

In terms of economic forecast, Russia's GDP for 2024 is projected in the range up to 1% — 2%.