The central bank raised the key rate to 7.5%

The overwhelming majority of analysts interviewed by Interfax the day before expected a rate increase of 50 bps, only some experts allowed a step of 25 bps.

‘Inflation is significantly higher than the forecast of the Bank of Russia and by the end of 2021 is expected in the range of 7.4-7.9%. The contribution to inflation from stable factors remains significant due to the faster expansion of demand compared to the possibilities of increasing output. Under these conditions, and taking into account the newly increased inflation expectations, the balance of risks for inflation is significantly shifted towards pro-inflationary ones. This may lead to a longer deviation of inflation upward from the target. The monetary policy pursued by the Bank of Russia is aimed at limiting this risk and returning inflation to 4%,’ the regulator said in a statement.

If the situation develops in accordance with the basic forecast, the Bank of Russia admits the possibility of further increases in the key rate at the next meetings. Decisions on the key rate will be made taking into account the actual and expected dynamics of inflation relative to the target, the development of the economy on the forecast horizon, as well as the assessment of risks in terms of internal and external conditions and the reaction of financial markets to them.

According to the forecast of the Central Bank, taking into account the monetary policy, annual inflation will decrease to 4-4.5% in 2022 and in the future will be near 4%.

The average key rate until the end of the year is projected in the range of 7.5-7.7%. At the same time, the regulator raised the forecast for the average rate for 2022 from 6-7% to 7.3-8.3%, for 2023 - from 5-6% to 5.5-6.5%.

This is the sixth increase in the key rate in a row. In March 2021, the Bank of Russia took the first step towards normalizing monetary policy tightening by raising the key rate by 25 bps to 4.5% from the historical low of 4.25%. In April, the regulator increased it by 50 bps - up to 5%, in June by another 50 bps - up to 5.5%. In July, for the first time since December 2014, the Central Bank raised the rate by 100 bps at once, to 6.5%. In September, the rate increased by another 25 bps, to 6.75%.

The next meeting of the Board of Directors of the Bank of Russia to consider the level of the key rate is scheduled for December 17 this year.