The Central Bank Board of Directors decided to keep the policy rate at 7.5 percent. The decision follows a period of stability since September 2022 and reflects a cautious stance on future rate moves. Online regulator insights are aligned with this stance, underscoring that no immediate change is anticipated at the current meeting cycle.
Inflation remains a mixed picture. While price gains are gradually moving higher, their components tied to sustainable factors appear to be moderating. Inflationary expectations among households and businesses have receded but stay elevated. Economic momentum is stronger than the Central Bank of Russia’s October projection, and consumer activity shows early signs of revival, even as households remain cautious in their spending habits.
At the same time, inflationary pressures could intensify due to faster execution of budget programs, a deterioration in foreign trade conditions, and the prevailing labor market situation. The balance of risks points to ongoing vigilance for price dynamics over the near term.
The next policy meeting to determine the size of the key interest rate is scheduled for 17 March.
Elvira Nabiullina, the Governor of the Central Bank, stated that a rate cut was not expected at the current gathering. Looking ahead, she noted that the conditions favouring a rate increase appear stronger than those supporting a cut.
Her assessment indicates that the probability of a rate rise in Russia during 2023 remains higher than the probability of a reduction. The framework remains oriented toward achieving the 4 percent inflation target, with the latest projections for 2023 guiding the central path.
The regulator adjusted its 2023 forecast for the key rate upward, moving from a range of 6.5-8.5 percent to 7-9 percent, and for 2024 from 6-7 percent to 6.5-7.5 percent.
GDP Forecast
The central bank projects that Gross Domestic Product will turn positive in mid-2023, with quarterly gains already evident in the third and fourth quarters. On an annual basis, the bank anticipates a shift into positive territory around the middle of the year.
Overall, this year’s GDP might vary from a slight decline to a modest gain, with a potential range of minus 1 percent to plus 1 percent. For 2024, the forecast suggests growth in the vicinity of 0.5 to 2.5 percent. By 2025, the bank expects growth between 1.5 and 2.5 percent. The crude oil price projection for 2023 was adjusted downward from $70 to $55 a barrel in October, reflecting market conditions.
Inflation Dynamics
Nabiullina also noted that inflation in Russia could reach its highest point since early 2022, though January data remain preliminary. Early monthly indicators show price increases reaching levels not seen since the prior peak, excluding regulated tariff indexation. Despite a gradual pace of price acceleration, annual inflation is expected to ease in the coming months due to base effects. In the spring, inflation may fall below 4 percent, compared with the current rate around 11.8 percent.
The Governor stressed that this projected easing in annual inflation should not be misread as a broad shift in the inflationary landscape; rather it reflects a transition out of the peak observed in March and April 2022.
Global Risk Landscape
The central bank chief highlighted a notable reduction in global recession risks thanks to improving conditions in world markets. Three factors underpinning a more optimistic outlook were highlighted: the reopening of the Chinese economy after the relaxation of Covid-19 measures, a cooling trend in major Western central banks through the peak of rate hikes, and lower energy prices.
Nevertheless, the risk of harsher sanctions against Russia remains elevated. Yet the central bank does not anticipate significant negative shocks to the domestic economy in the current year. In Nabiullina’s view, the rapid adaptation of the economy and market assets, alongside higher export prices for Russian goods, has played a crucial role in stabilizing the economy. Overall, the balance of factors does not indicate a severe downturn for 2023.
In summary, the central bank’s assessment emphasizes a measured approach to monetary policy, with a bias toward gradual tightening if inflationary pressures persist, while acknowledging the improving international backdrop and the resilience of domestic economic activity.