The Central Bank of Russia decided to keep its benchmark interest rate at 7.5% this Friday (28) at a monetary policy meeting. The decision interrupts a string of aggressive cuts that began in early April and brought borrowing costs in the country to levels lower than those seen before the start of the war in Ukraine in February this year.
Before the start of the conflict, the prime rate was 9.5%, and it was raised to 20% shortly after the Russian invasion, to stem the melting of the ruble. Since April, the Central Bank of Russia has carried out six interest rate cuts.
The Russian central bank estimates that the currently sluggish growth in consumer prices will help slow inflation, which is expected to hover around 12% to 13% by the end of 2022, before falling to the 5% to 7% range in 2023 and return to the 4% target in the following year.
The monetary authority also says that Russia’s economy showed stronger-than-expected dynamics in the third quarter, which suggests a milder contraction in gross domestic product (GDP) this year, despite the shocks caused by sanctions around the world in response. to the invasion of Ukraine.
The BC projects a drop of 3% to 3.5% of GDP in 2022 and says that the trend should remain negative in 2023, from -1% to -4%. “However, the Bank of Russia expects the Russian economy to start growing in the second half of 2023. In 2024 and 2025, GDP will grow by around 1.5 to 2.5% a year”, he predicts.
As for inflationary risks, the BC emphasizes that there is a “balance” between inflationary and disinflationary forces in the short term. In the medium term, however, inflationary risks remain predominant and have increased since mid-September, he says.
The main downside risk comes from the possibility that Russian households will save more money due to the current high uncertainty, according to the institution. The BC still points to the fragmentation of the global economy and financial system as the point of greatest concern among those who can strengthen inflation.
Source: CNN Brasil
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