Central Bank Rate Decision and Inflation Outlook for 2023–2024 (US/Canada Focus)

The central bank has announced a rate increase in response to persistent inflation, revising its outlook for price gains in the year ahead. The regulator now projects that annual inflation will run between 7 and 7.5 percent in 2023, up from an earlier forecast of 6 to 7 percent.

In a post-board release, the central bank noted that ongoing monetary policy measures should help bring inflation down to 4 to 4.5 percent in 2024 and keep roughly near 4 percent in the longer term.

Earlier projections anticipated a return to 4 percent inflation next year.

At the moment, the monthly inflation pace tracked by the Bank remains well above the 4 percent target for the fifth consecutive month. The bank estimated the current pace at 14.6 percent in September, after 9.4 percent in August and 12.3 percent in July. Market analysts in October predicted that the year-over-year rate could stay above 10 percent for a period.

Analysts stressed that the bank aims to steer inflation back to target by the end of 2024, a goal that may require continued tightening. One expert noted that monetary policy affects inflation with a lag of several quarters, reinforcing the case for prudent policy steps now.

Another view is that a higher policy rate should cool rapid lending and ease demand pressures, helping to slow consumer price growth and move inflation toward the target. Yet, some observers doubt that a return to the 4 percent target will occur before 2025. In the baseline scenario, inflation could ease from the mid-2024 level of about 7.5 percent to around 5.5 percent by year-end 2024.

What might happen to the ruble?

Following the rate decision, the ruble strengthened noticeably against both the dollar and the euro. The dollar dipped below 93 rubles, and the euro hovered near 98 rubles. The Moscow Exchange reported a dollar around 92.74 rubles and the euro near 97.72 rubles at a specific snapshot in the afternoon sessions.

Analysts expect the policy move to provide a moderately favorable tilt for the ruble in the near term, even as foreign participation and capital flow restrictions continue to shape currency dynamics.

Some anticipate the dollar may trade in a broad corridor, roughly between 90 and 100 rubles, with the year-end targets suggesting the dollar in the 94–98 range and the euro around 99–104 rubles. The yuan could trade in the vicinity of 12.8–13.4 rubles under the current conditions.

One analyst highlighted that the currency impact of policy decisions is increasingly indirect due to reduced foreign participation and ongoing capital controls, complicating short-term projections.

Looking ahead, the common expectation is for the dollar to remain within a certain band, with the ruble aiming to stabilize as policy transmission unfolds. The mix of pace and path for exchange rates will continue to hinge on broader monetary policy signals and external developments.

What about deposits and loan rates?

Experts forecast that, following a 200 basis point (two percentage point) rise in the key rate, banks would adjust the pricing on deposits and loans, including mortgages. Deposit rates may align with the policy rate, potentially reaching the mid-teens, creating opportunities for savers to earn meaningful real returns if inflation peaks and then eases.

Inflation is expected to peak a bit above 8 percent in the middle of next year before easing to around 5.5 percent by late 2024, which would support a positive real return on savings for some investors. Demand for ruble savings could rise as households seek to protect purchasing power.

On the lending side, loan products may become less attractive as rates rise, and demand could moderate as borrowing costs increase. Some market observers note that there could be a window to secure loans at earlier, lower rates before lenders adjust with the new policy stance. They also advise caution about foreign currency exposure, given the anticipated ruble strengthening after the policy move. Local financial education and planning guidance emphasize evaluating the real costs and benefits of new funding against inflation expectations.

Analysts also caution that, unless there is an urgent need, delaying new, expensive borrowing could be sensible if later rate reductions are anticipated in 2024. For savers and borrowers alike, the expectation is that the key rate could remain in double digits through much of 2024 and perhaps into 2025, depending on inflation trajectories and external pressures.

What comes next for the key rate?

The central bank signaled openness to further rate rises at upcoming meetings, while projecting a higher average rate for the current year. The anticipated end-year range for the policy rate sits around 15 to 15.2 percent, with 2024 forecasts lifted to about 12.5 to 14.5 percent on average.

Analysts suggest that, given a year-end inflation target near 7 to 7.5 percent and the updated rate projections, there is a credible expectation of another 50 basis point move at the next policy meeting, lifting the rate to about 15.5 percent. In the baseline case, this would mark the peak of the current tightening cycle.

Only in the middle of next year, as inflation slows, is there a plausible opportunity to begin easing. In the central scenario, inflation could ease to roughly 5.5 percent by the end of 2024, with the policy rate easing toward around 10 percent. A risk scenario imagines the rate climbing to 17 to 20 percent if currency weakness accelerates or inflation accelerates beyond expectations in early 2024.

It is worth recalling that the policy rate was raised to a record 20 percent in March 2022 amid global and domestic pressures, a milestone that underscored the central bank’s willingness to act aggressively to stabilize prices.