Miscalculation of the Bank of Russia
The Bank of Russia acknowledged that its policy stance should have shifted sooner. In an interview with RBC, Elvira Nabiullina, the central bank governor, reflected on the timing of rate increases and inflation trends affecting the institution’s decisions.
She noted that inflationary pressures intensified in the latter half of the year and that price growth rose well above the 4% target. Looking back, she suggested that monetary policy had been too accommodative and that earlier rate hikes would have helped temper the momentum. The central bank stressed that any policy adjustment must be backed by a sustained decline in inflation, requiring analysis of a broad set of indicators over a period of two to three months. It was also highlighted that current price increases far exceed the 4% target embedded in the budget. On November 22, First Deputy Director of the monetary policy department, Andrei Gangan, stated that the 2023 inflation forecast remained at 7% to 7.5%. [Source attribution: Bank of Russia communications]
Up to 16% increase
In five steps during 2023, the policy rate was raised from 7.5% to 16%. The tightening began with the first decision in July. By December 15, the lending rate stood at 16% annually as the regulator argued that the economy was overheating and that inflation expectations among households and business price outlooks were rising.
The central bank described inflation pressures as elevated, projecting year-end inflation near 7.0% to 7.5%, at the upper end of its forecast range. At the same time, GDP growth for 2023 surpassed expectations, reaching around 3% thus far. The bank noted that the acceleration had moved the economy away from a balanced growth path more than it had anticipated in October. Nabiullina used a car analogy to illustrate policy risk, saying that pushing the economy beyond its designed speed would lead to overheating and a shorter, less durable rise in output. [Source attribution: Bank of Russia communications]
Opinions about the rate
On December 7, President Vladimir Putin backed the Bank of Russia’s decision to sharply raise the rate. He acknowledged disagreements on the level of the key rate but stated that the overall direction of development appeared sound in the decision-making process. [Source attribution: Kremlin remarks]
Commentary from August 15 came from billionaire Oleg Deripaska, founder of Rusal and En+ Group, who suggested that rate increases had become a tradition amid market frenzy and uncertain signals that anything would improve. He remarked that the pattern felt like a festive, even theatrical ritual, benefiting a few state-owned banks. [Source attribution: Deripaska remarks]
Anatoly Aksakov, chair of the State Duma Committee on Financial Markets, projected that rate cuts could begin in the second quarter of 2024. He supported the 16% level as necessary to curb inflation, but suggested that this level might be the limit. He argued that cooling pressure on the market would enable a gradual easing, making loans cheaper as inflation recedes. [Source attribution: Aksakov remarks]