Bank of Russia Plans to Raise Key Rate

By 2023 the rate might be about 6%

On April 23, 2021, the Russian Central Bank increased the key rate by 50 points to 5% per annum and discussed a new strategy on the rate. The regulator is going to change the trajectory of the key rate; on March 19, it had already been increased by 25 points to 4.5% per annum.

Given that over the period from the beginning of the year to April 25 the key rate was about 4.3% on average, the current forecast for the rest of this year is a corridor from 5.0 to 5.8%. 

The same rate for 2022 will be about 5.3% to 6.3% and 5.0% to 6.0% in 2023.

According to the Bank of Russia, this trajectory meets the bank’s macro-economic forecast and its monetary course, which is aimed on keeping the inflation rate near 4%.

However, the regulator admits that the real rate might slightly differ from the forecast throughout the year. For example, over four years in a row before 2020, the rate was higher at the beginning of each year than the average rate over the year. At the end of each period, the rate was slightly lower instead. 

In contrast, when the Bank of Russian increases the key rate, it’s lower than the average rate at the beginning and higher at the end of the year.

As the regulator noted, corridors of the average key rate shouldn’t be considered as borders of the key rate changes during a year because figures might be slightly different from forecast figures. However, the Bank of Russia believes that the key rate will likely meet the declared corridors.

Another forecast from the central bank is an inflation rate; in 2021 it should be at a 4.7% to 5.2% level, according to the bank. Russian GDP is expected to be about 3-4% higher than the 2020 figure. Export can get 0.2-2.2% growth while import might surge by 13.8-15.8%.

The price of Urals oil brand for this year is expected to be at $60 for barrel, while in 2020 it was just $42 on average.

According to the Bank of Russia, its basic financial forecast is describing the most likely macro-economic scenario for Russia and the world. It’s based on information available to the bank’s board, which makes decisions on the key rate four times a year.

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