In its quarterly Monetary Policy Report, the Bank of Russia presents its assessments of the current economic situation and its macroeconomic forecast which is the basis for making key rate decisions.
Annual inflation has dropped because of the previous year’s high base
Current price growth is accelerating gradually
The GDP forecast for 2023 has been raised notably
Monetary conditions remain neutral overall
The Bank of Russia will set the key rate path so as to bring inflation back to 4% in 2024 and stabilise it at this level
Steady price pressure has been intensifying
The annual inflation rate is temporarily at lower levels because of the high base of spring 2022. Furthermore, in recent months, inflation has been still contained by one-off factors, the impact of which has turned out to be stronger and longer-lasting. Specifically, the high harvest is weakening price pressure in food markets. In addition, price growth is limited owing to large stocks of a number of product groups. However, current price growth rates have been rising gradually from late 2022 to reach 4% by now in annualised terms. The Bank of Russia forecasts that prices will grow by
Inflation, inflation expectations and Bank of Russia key rate
Economic activity continues to increase
Companies continue to adjust to the new environment. This process is supported by the expansion of both public and private demand. Exports are contracting, whereas imports are recovering. Many companies have managed to refocus on domestic alternatives of Western investment equipment. However, a faster increase in output is impeded by resource constraints, specifically in the labour market. In February 2023, the unemployment rate dropped to a new record low of 3.4%.
Considering a quicker adaptation of the economy to the new environment, the Bank of Russia has raised its forecast of GDP growth in 2023 to
Key forecast parameters
Growth, % YoY, unless indicated otherwise
| 2022 (actual) |
2023 | 2024 | 2025 | |
|---|---|---|---|---|
| Inflation, % change, Dec on Dec | 11.9 | 4.0 | 4.0 | |
| Gross domestic product | −2.1 | 0.5–2.0 | ||
| % change, Q4 on Q4 of the previous year | −2.7 | (−0.5)–(+1.0) | ||
| Household final consumption expenditure | −1.4 | |||
| Gross fixed capital formation | 3.3 | 0.0–3.0 | (−2.5)–(+0.5) | |
| Banking system’s claims on the economy in rubles and foreign currency, including: | 12.0 | |||
| on businesses | 13.2 | |||
| on households, including: | 9.4 | |||
| housing mortgage loans | 17.6 |
Monetary conditions remain neutral overall
Since the February meeting, the difference in interest rates on short- and long-term federal government bonds has increased slightly more. Yields on long-term OFZ bonds remain elevated, which is associated with concerns about a rise in inflation and government borrowings. Nevertheless, with credit rates at the current level, both the corporate and retail segments of the credit market continued to bounce back. Households’ propensity to save has been declining gradually.
OFZ yields and Bank of Russia key rate, % p.a.
* Maximum ruble deposit rate in the top ten banks.
The Bank of Russia will set the key rate path so as to bring inflation back to 4% in 2024 and stabilise it at this level
The ratio of risks over the medium-term horizon is still shifted towards proinflationary ones. If aggregate demand exceeds the potential to expand supply, the further recovery of the economy might be accompanied by a rise in inflationary pressure. To bring inflation to 4% in 2024, the Bank of Russia might need a higher level of the key rate. The forecast range of the average key rate in the baseline scenario is
Bank of Russia annual key rate, % per annum
