MOSCOW, July 23. /TASS/. The Bank of Russia raised the key rate by 1 percentage point to 6.5% per annum, the regulator said on Friday following the meeting of the board of directors.
"On 23 July 2021, the Bank of Russia Board of Directors decided to increase the key rate by 100 b.p. to 6.50% per annum. According to the Bank of Russia’s estimates, the Russian economy reached its pre-pandemic level in 2021 Q2. The contribution of persistent factors to inflation increased due to faster growth of demand compared to output expansion capacity. Taking into account high inflation expectations, this has significantly shifted the balance of risks towards proinflationary ones and may cause inflation to deviate upwards from the target for a longer period. The key rate decision taken aims to constrain this risk and to return inflation to 4%," the statement said.
At the same time, the regulator raised its forecast for the average key rate for 2021 to 5.5-5.8% per annum from 4.8-5.4%, for 2022 - to 6-7% per annum from 5.3-6.3%. For 2023, the forecast was retained at the level of 5-6% per annum.
Meanwhile, the Bank of Russia will assess the feasibility of further increasing the key rate at the next meetings. "If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate increase at its upcoming meetings. Key rate decisions will take into account actual and expected inflation dynamics relative to the target and economic developments over the forecast horizon, as well as risks posed by domestic and external conditions and the reaction of financial markets," the regulator said.
Expected GDP growth
In its updated mid-term forecast, the regulator improved expectations for Russia's GDP growth from 3-4% to 4-4.5%. "Taking into account the situation in the Russian and global economy as well as the July OPEC+ decision to expand oil production, the Bank of Russia forecasts Russian GDP growth of 4.0-4.5% in 2021. According to the Bank of Russia’s forecast, in 2022-2023, the Russian economy will grow 2.0-3.0% annually," the regulator said.
Earlier, the Bank of Russia expected GDP growth in 2022 at the level of 2.5-3.5%.
According to the regulator, "Economic activity. According to the Bank of Russia’s estimates, the Russian economy reached its pre-pandemic level in 2021 Q2. High-frequency indicators point to steady growth of consumer and investment demand. As estimated by the Bank of Russia, consumer activity has already exceeded its pre-pandemic levels. Despite a partial tightening of restrictions, the household services sector continues to recover actively."
The Bank of Russia raised its inflation forecast for 2021 to 5.7-6.2% from 4.7-5.2%, and for 2022 - to 4-4.5% from 4%. "According to the Bank of Russia’s forecast, annual inflation will reach 5.7-6.2% in 2021. Given the monetary policy stance, annual inflation will edge down to 4.0-4.5% in 2022 and will remain close to 4% further on," the regulator said.
The regulator also raised its forecast for the price of Urals oil in 2021 to $65 from $60 per barrel. The forecast for 2022 has also been increased to $60 from $55 per barrel, in 2023 - to $55 from $50 per barrel.
The next meeting of the Board of Directors of the Bank of Russia to review the level of the key rate is scheduled for September 10, 2021.