Steady as She Goes: The Russian Central Bank's 21% Rate Standoff
Central Bank of Russia maintains interest rate steady at 21%
In Moscow, the central bank stays its ground, keeping the key interest rate at a stocky 21%—a figure unseen since the early 2000s. Inflation, while beginning to cool down, still hovers above the bank's desired mark, prompting this stubborn stand-off. Meanwhile, the looming shadow of global economic upheaval rolls in, bringing new dangers to the Russian economy, triggered by escalating trade tensions ignited by US tariffs.
The bank's statement plainly states the potential issues at hand: "Furtherdownward slopes in global economic expansion and oil prices could flare up inflation from the roiling ruble exchange rate dynamics."
This decision aligns with a Reuters poll of 25 analysts, and the bank appears resolute in its battle against inflation. The ruble, surging by 37% against the dollar this year, has become an unexpected ally in this struggle, making imported goods more affordable.
The bank acknowledges that current inflationary pressures, both explicit and underlying, are on a downward trend, yet they remain alarmingly high. In its predictions, the bank holds firm to its 2025 inflation forecast at 7.0-8.0%, anticipating a return to the 4.0% target in 2026.
Rumors swirl that Russia's economy ministry has slashed its 2025 Brent price forecast by a hefty 17%. The bank, not to be outdone, also leaves room for further rate hikes, hinting at an average key rate range of 19.5-21.5% in 2025, previously estimated to be 19-22%.
Amidst the ongoing conflict in Ukraine and the persistent sanctions, Russia's economy has proven to be a force to be reckoned with—outperforming expectations for the last three years. However, the country braces for a long period of lower oil prices and declining budget revenues, finding itself in a precarious predicament.
As Alfa Bank's Natalya Orlova puts it, this move by the central bank is all about creating a steady economic landscape amidst the chaotic trade wars and the rollercoaster ride of oil prices.
The bank points out a slowdown in economic activity during the first quarter of 2025, compared to the robust final quarter of 2024. Additionally, the share of enterprises grappling with labor shortages is on a downward spiral. The bank has kept its 2025 growth forecast at a modest 1-2%, below the government's more ambitious 2.5%. The bank's next meeting has been scheduled for June 6.
- The central bank's decision to maintain a key interest rate of 21% is a response to persistently high inflation, despite the ongoing battle against it.
- The Russian economy, despite facing challenges such as global economic instability, trade tensions, and US tariffs, continues to show resilience, outperforming expectations for the past three years.
- The bank's recognition of a decrease in inflationary pressures does not alleviate the concern that the current rate of inflation remains unacceptably high.
- The central bank has based its 2025 inflation forecast on a range of 7.0-8.0%, with a hopeful return to the 4.0% target in 2026.
- As the economic conflict and sanctions persist, the central bank is preparing for a future with lower oil prices and reduced budget revenues, which presents a challenging situation for the Russian economy.
