MOSCOW, June 7. /TASS/. The Bank of Russia has again kept its key rate at 16% per annum, though it holds open the prospect of increasing it at the upcoming meeting, the regulator said in a press release.

"On 7 June 2024, the Bank of Russia Board of Directors decided to keep the key rate at 16.00% per annum. The current price growth rate has stopped decreasing and remains close to the levels of 2024 Q1. Growth in domestic demand is still outstripping the capabilities to expand the supply of goods and services. The Bank of Russia holds open the prospect of increasing the key rate at its upcoming meeting. Furthermore, returning inflation to the target will require a significantly longer period of maintaining tight monetary conditions in the economy than it was forecast in April," the regulator said.

Over the medium-term horizon, the balance of inflation risks has shifted even more towards proinflationary ones, the Central Bank noted. "The key proinflationary risks are associated with changes in terms of trade (including as a result of geopolitical tensions), persistently high inflation expectations and an upward deviation of the Russian economy from the balanced growth path," according to the press release.

Meanwhile maintaining large-scale government subsidized programs may slow the return to more moderate lending growth rates. Disinflationary risks are primarily related to a faster slowdown in domestic demand than expected in the baseline scenario, the regulator said. According to its forecast and given the monetary policy stance, annual inflation will return to the target in 2025 and stabilize close to 4% further on. That said, the current price growth rate has stopped decreasing and remains close to the levels of 2024 Q1. In April, the current seasonally adjusted price growth equaled 5.8% in annualized terms after 5.7% (on average) in 2024 Q1. Seasonally adjusted core inflation rose to 8.3% in annualised terms from 7.1% (on average) in 2024 Q1. Concurrently, one-off factors related to the indexation of tariffs on communications services and an increase in prices for domestic cars also contributed to price growth in April-May. According to the estimate as of June 3, annual inflation stood at 8.1% after 7.8% at the end of April.

The Russian economy still shows a significant upward deviation from a balanced growth path, the regulator noted.

Consumer activity remains high amid a significant increase in households’ incomes and positive consumer sentiment. According to companies’ surveys, investment demand remains high. Labor shortages come as the key constraint on the expansion of output of goods and services. Labor market tightness continues to grow. Unemployment has dropped to a new historical low.