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Russia holds key rate at 21% as inflationary pressure remains high

March 22, 2025
in Business & Finance
Russia holds key rate at 21% as inflationary pressure remains high
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MOSCOW: The Russian central bank kept its key rate on hold at 21% on Friday, in line with expectations, and said more rate hikes were still possible in the future as inflationary pressures have decreased but remain high.

“The Bank of Russia estimates that the achieved tightness of monetary conditions creates the necessary prerequisites for returning inflation to the target in 2026,” the regulator said in a statement.

“If disinflation dynamics do not ensure achieving the inflation target, the Bank of Russia will consider raising the key rate,” it added.

All 29 analysts who participated in a Reuters poll conducted earlier this week predicted that the regulator would keep its benchmark interest rate on hold, to allow more time for inflation to respond to the bank’s hawkish stance.

The central bank raised its interest rate to 21% last October, the highest level since the early 2000s, in an effort to contain inflation, Russia’s main economic challenge.

President Vladimir Putin urged his economic officials this week not to freeze the Russian economy as if it were in a “cryotherapy chamber” with their tight monetary policy.

Putin spoke to Russian business leaders, many of whom openly oppose the central bank’s policy and argue that it is stifling the economy and investment. He emphasized that an excessive cooling-down of the economy should be avoided.

The central bank forecasts that economic growth will fall to 1-2% in 2025 from 4.1% in 2024 as a result of its monetary policy, while the government expects the economy to grow by 2.5% in 2025.

Weekly inflation, an important gauge closely monitored by the central bank, slowed to the lowest level since the start of the year, according to the latest data. Meanwhile, the annual inflation rate also slipped slightly but remained above 10%.

Inflation expectations among Russian households for the year ahead, another important factor considered by the board, were also at their lowest level since August 24, 2024. The central bank’s inflation target is 4%.

The Russian rouble, which has rallied by up to 28% this year on expectations of easing tensions between Russia and the United States and a peaceful settlement in Ukraine, is also helping to combat inflation as it makes imported goods cheaper.

“The current price growth in February and early March was partly constrained by a stronger rouble since the beginning of the year,” the central bank said, adding that easing geopolitical tensions could also have a disinflationary effect.

Tags: Bank of RussiaRussian central bank
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