MOSCOW, July 26. /TASS/. The Bank of Russia raised the key rate for the first time since December 2023 - from 16% to 18% per annum, and will consider the further raising it at its next meetings, the regulator said on Friday.

"On 26 July 2024, the Bank of Russia’s Board of Directors decided to increase the key rate by 200 basis points to 18.00% per annum. Inflation has accelerated and is developing significantly above the Bank of Russia’s April forecast. Growth in domestic demand is still outstripping the capabilities to expand the supply of goods and services. For inflation to begin decreasing again, monetary policy needs to be tightened further. Returning inflation to the target requires considerably tighter monetary conditions than presumed earlier. The Bank of Russia will consider the necessity of further key rate increase at its upcoming meetings," the regulator said.

At the same time, the Bank of Russia raised its forecast for the average key rate in 2024 to 16.9-17.4%, and in 2025 the regulator expects the average key rate to be in the range of 14-16%. The forecast for the average key rate for 2026 has also been raised to 10-11% (previously 6-7%). In 2027, the Central Bank expects the average key rate to be at the level of 7.5-8.5%.

Taking into account that from January 1 to July 28, 2024, the average key rate was 16%, the average key rate is projected to be in the range of 18-19.4% from July 29 to the end of 2024, the regulator noted.

Medium-term macro forecast

The Bank of Russia expects the Russian economy to grow by 3.5-4% by the end of 2024 in its updated macro forecast. Earlier, the regulator had projected Russian GDP to grow within 2.5-3.5% this year.

According to the published macro forecast, in 2025, the Russian economy will grow by 0.5-1.5% (previously forecasted - 1-2%), and in 2026 - by 1-2% (1.5%-2.5%). In 2027, the Russian economy is expected to grow by 1.5-2.5%.

"High-frequency indicators for 2024 Q2 show that the Russian economy continues to grow rapidly. Consumer activity remains high amid a significant increase in households’ incomes and positive consumer sentiment. Substantial investment demand is supported by both fiscal incentives and high profits of businesses. The significant upward deviation of the Russian economy from a balanced growth path is not decreasing," the report said.

The regulator also significantly increased its inflation forecast for Russia in 2024 to 6.5-7% from 4.3-4.8%, but expects it to decline to 4-4.5% in 2025.

At the same time, the Central Bank noted a growing labor shortage. "In these conditions, the growth in domestic demand does not result in a proportional expansion of the supply of goods and services but rather increases the costs of businesses and, consequently, intensifies inflationary pressures," the regulator said.

According to the regulator's estimates, annual inflation as of July 22 accelerated to 9% from 8.6% in June. This dynamic also reflects the growth of utility tariffs from July 1.

"Over the medium-term horizon, the balance of inflation risks is still tilted to the upside. 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. Disinflationary risks are primarily related to a faster slowdown in domestic demand growth than expected in the baseline scenario," the Bank of Russia added.

In addition, the Bank of Russia forecasts the price of Brent oil in 2027 at $70 per barrel. The regulator also raised its forecast for the price of oil in 2026 to $75 from $70 per barrel. The forecast for 2024 and 2025 remained unchanged at $85 and $80 per barrel, respectively.

The Bank of Russia plans to hold the next meeting of the Board of Directors on September 13.