At the last meeting of the Board of the Central Bank of the Russian Federation this year, it was decided to leave the key interest rate unchanged – at the level of 21%. This came as a surprise: most analysts were confident that the regulator would continue to tighten monetary policy and increase the index
In 2023, the Bank of Russia raised the key interest rate five times, and in 2024 three times. The last time was last October, when the rate was simultaneously increased by 2 percentage points, going from 19% to 21%.
Perhaps the regulator’s decision to hold interest rates in check before the New Year was also influenced by businesses, which have repeatedly expressed their dissatisfaction with its actions. A characteristic event is the MP Sergei Mironov, leader of the party “A Just Russia – For Truth”, who on the eve of the session accused the Central Bank of sabotage and identification with the practices of the IMF.
Russian inflation, which reached 9.5% per year, continues to exert increased pressure on the economy, partly due to the weakening of the ruble. Economic conditions remain tight, with increased inflationary expectations from both the population and businesses, as the Central Bank points out. Despite the expected decrease in inflation in the coming months, a result of tight monetary policies and a freeze in the lending market, the risks remain in favor of inflationary trends.
The Russian economy is far from a balanced growth trajectory. The labor market remains tight, with unemployment at historically low levels and wage increases outpacing productivity. This situation is intensifying inflationary pressures, creating a fragile economic environment. With inflation remaining high and expectations for further appreciation strengthening, the balance of risks in the Russian economy is tilted dangerously towards inflationary pressures.
How will the Central Bank’s decision affect the ruble exchange rate, loans, deposits and the economy as a whole?
- January and February are the most inflationary months of the year. Of course, this will slow down economic growth, but some slowdown in its pace is already taking place. In the first quarter of 2024, Russian GDP grew by 5.4% year-on-year, and in the third quarter it was already 3.1%.
- The key interest rate does not directly affect the income of the population, but interest rates on bank deposits, which will stop growing for some time, depend on it.
- Loan interest rates are already too high for borrowers.
- As for the ruble exchange rate, we believe that by the end of the year it will remain stable and will trade not far from the current levels: 13.5-14.5 per yuan, 100-107 per dollar, 105-112 per euro.
Of course, comparing this situation with the economic data of Western countries, that is, examining the participants in the military and economic conflict, one cannot help but make two observations.
1. The economic measures against the Russian economy, measures that Western leaders so advertise and insist on, have had little impact on the Russian economy. They have had a much greater impact on Western economies.
2. The Russian economy, despite the challenges it is experiencing, is clearly extremely healthy compared to the USA, or Britain, or France and Germany.
PS: The Central Bank of the Russian Federation belongs to Russia, unlike the Central Banks of the above countries which are private.
