Bank of Russia retains key rate at 16% per annum

The Bank of Russia once again decided to maintain the key rate at 16% per annum at its second meeting in 2024, the regulator said in its press release, Azernews reports, citing TASS.

"On 22 March 2024, the Bank of Russia Board of Directors decided to keep the key rate at 16.00% per annum. Current inflationary pressures are gradually easing but remain high. Domestic demand is still outstripping the capabilities to expand the production of goods and services. Labor market tightness has increased again. For the moment, it is premature to judge the pace of future disinflationary trends. The Bank of Russia’s monetary policy is set to solidify disinflation processes unfolding in the national economy," the statement said.

The Bank of Russia noted that returning inflation to the target level and its stabilization near 4% implies a long period of tight monetary conditions in the economy. "The return of inflation to target in 2024 and its further stabilization close to 4% assume that tight monetary conditions will be maintained in the economy for a long period. According to the Bank of Russia’s forecast and given the monetary policy stance, annual inflation will decline to 4.0-4.5% in 2024 and will stabilize close to 4% further on," the statement said.

According to the regulator's estimates, the annual inflation rate remains at the level of February and amounted to 7.7%, according to estimates as of March 18.

The Russian economy continued to grow actively in the Q1 of 2024, the regulator added. "High-frequency indicators show that the Russian economy continues to grow rapidly in 2024 Q1. Consumer activity remains high amid a significant increase in household incomes and positive consumer sentiment. According to companies’ surveys, investment demand remains high. The Russian economy still shows a significant upward deviation from a balanced growth path," the statement said.

Meanwhile, the effects of previous key rate increases on lending dynamics will continue to grow in the coming months. "Since the beginning of the year, corporate and mortgage lending have grown at a slower pace. However, in the retail sector, unsecured consumer lending has accelerated. Higher incomes allow households to simultaneously increase savings and consumption. The effects of prior key rate rises on lending are expected to strengthen in the next few months. Bank lending conditions will additionally tighten as a result of a number of macroprudential measures and the rollback of most regulatory relaxations for banks," the statement said.

At the same time, unemployment in Russia reached a historical low. "Labor shortages come as the key constraint on the expansion of output of goods and services. Concurrently, labor market tightness has increased again. Unemployment has dropped to an all-time low," the statement said.

The Bank of Russia Board of Directors will hold its next key rate review meeting on April 26, 2024.