MOSCOW (Reuters) – Russia’s central bank held its key interest rate at 16% on Friday, warning that inflationary pressure remained high and that tight monetary conditions would be maintained for a long time to try to return inflation to the bank’s 4% target.
The bank’s tightening cycle may be over, but it has not yet found room to ease borrowing costs, hampered by strong consumer demand and the inflationary impact of widespread labour shortages in Russia.
“Domestic demand is still outstripping the capabilities to expand the production of goods and services,” the bank said in a statement. “Labour market tightness has increased again.”
Inflation, the bank’s main area of concern, stood at 7.4% in 2023, compared with 11.9% in 2022. Economists expect it to remain well above the central bank’s 4% target this year.
The central bank had raised rates by 850 basis points in the second half of 2023, including an unscheduled emergency hike in August as the rouble tumbled past 100 to the dollar and the Kremlin called for tighter monetary policy, but has lately signalled a more dovish approach.
Friday’s decision was in line with a Reuters poll of analysts, most of whom expect the bank to start easing monetary policy in June.
Governor Elvira Nabiullina will address the media at 1200 GMT. The bank’s next rate-setting meeting is scheduled for April 26.
The central bank’s tightening cycle began last summer when inflationary pressure from a tight labour market, strong consumer demand and the government’s budget deficit was compounded by the falling rouble.
Russia had gradually reversed an emergency hike to 20% which it made in February 2022 after Moscow sent its army into Ukraine, prompting sweeping Western sanctions. It cut rates as low as 7.5% in 2023.
(Reporting by Reuters in Moscow and Alexander Marrow; Editing by Mark Trevelyan)
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