The highest level of the last 20 years of years
Russia’s Central Bank has maintained its main interest rate at 21%, the highest level of more than 20 years, despite President Vladimir Putin’s request not to cool the economy and despite the intense complaints of businessmen.
The central bank increased its interest rate to 21% last October, the highest level since the early 2000s, in an attempt to limit inflation, Russia’s main economic challenge. In a statement on Friday, the regulatory authority said the pressures were still existing.
“Current inflationary pressures have been reduced, but they remain high, especially the subjects,” the Central Bank said in its statement, adding that its tight monetary policy could reinstate inflation to its 4% target in 2026, and did not exclude the possibility of a new increase.
The Central Bank surprised analysts last December, when it kept the main interest rate on waiting instead of the expected increase, following Putin’s appeal for a “balanced” decision, which was taken the day before the Board of Directors.
Putin called on his financial officials on Tuesday not to freeze the Russian economy with tight monetary policy.
Some analysts have said that adopting Putin’s advice could make the regulatory authority look weak and raise questions about its independence, even if there were some reasons for reducing the interest rate.
“Imagine that if the regulatory authority decides to reduce the interest rate for good reasons, it could again face criticism. People could say: “No one was expecting a decline, but the president had mentioned it in advance,” said Dmitry Polevoy of Astra Asset Management.
All 29 analysts involved in the Reuters poll that took place earlier this week predicted that the regulatory authority would maintain the report rate, while many were expecting a mild rhetoric and suggestions on the timetable of a future reduction.
The Central Bank has warned the government not to exceed the expenditure targets this year after three years of increasing defense spending and military action in Ukraine.
“Changes in fiscal policy parameters may require adaptation to the monetary policy pursued,” the Central Bank said in its statement.
Many Russian big businessmen openly oppose the Central Bank’s policy, arguing that it stifles the economy and investment.
“We are expecting messages to reduce – this is crucial for investment and overall economic growth,” said Kiril Dmitryev, chief executive of Russia’s state investment fund and Putin’s envoy for international economic cooperation.
The Central Bank predicts that economic growth will be reduced to 1-2% in 2025 from 4.1% in 2024 as a result of monetary policy, while government experts expect the economy to grow 2.5% in 2025.
Weekly inflation, an important meter that is closely monitored by the Central Bank, fell to the lowest level since the start of the year, according to the latest data. At the same time, annual inflation also rested slightly, but remained over 10%.
Russian households’ inflationary expectations for the following year, another important factor in the Board of Directors were also at the lowest level since August 24, 2024. The target of the Central Bank for Inflation is 4%.
The regulatory authority stated that the basic inflationary risks are linked to economic warming, high expectations for inflation and deterioration of foreign trade conditions as a result of sanctions.
Rubli, which has increased up to 28% this year due to expectations to relax tensions between Russia and the United States and a peaceful settlement in Ukraine, also contributes to the fight against inflation, as it makes imported goods cheaper.
“The rise in current prices in February and in early March was partly confined to strengthening the ruble since the beginning of the year,” the Central Bank said, adding that the relaxation of geopolitical tensions could also have a deflationary effect.
Source: KYPE