Russia Central Bank Cuts Key Rate, Raises Inflation Forecast

Russia's Central Bank has lowered its key policy rate by 25 basis points, bringing it down to 14%. The decision was announced by Central Bank Chair Elvira Nabiullina, who also revealed an upward revision of the inflation forecast for the current year.

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Our assessment of sustainable inflation indicators remains in the 4-5% range.

Nabiullina stated that the recent acceleration in price increases, particularly in June, was influenced by developments in the fuel market and a resurgence in fruit and vegetable prices. She noted that the impact of rising fuel costs is beginning to spread across a wider range of goods and services. Consequently, the bank has raised its inflation forecast for the end of this year to between 6% and 7%.

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The increase in fuel prices and its reflection on other products has led us to raise our inflation forecast for the end of this year to between 6 and 7 percent.

While easing monetary policy, the bank stressed that this process must be gradual. Nabiullina explained that the current inflationary pressures and a more supportive budget necessitate a higher policy rate trajectory. The average policy rate for the full year is now projected at 14.5-14.6%, with expectations for next year ranging between 10.5% and 12.5%.

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The acceleration in inflation and the budget becoming more supportive require a higher policy rate path.

The bank has not entirely ruled out the possibility of future interest rate increases. Nabiullina affirmed that the bank would raise rates to the necessary level to ensure price stability if circumstances warrant. However, she added that there is currently no justification for preemptively increasing rates.

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We do not completely rule out the possibility of raising the policy rate again. If conditions change, we will raise the rate to the level necessary to ensure price stability, but we do not see a reason to raise the rate preemptively at this time.