Russia central bank warns of ‘large-scale structural transformation’ for economy, holds rates at 20%

Russia central bank warns of ‘large-scale structural transformation’ for economy, holds rates at 20%


Russian President Vladimir Putin chairs a meeting with members of the Security Council via a video link at the Novo-Ogaryovo state residence outside Moscow, Russia February 18, 2022.

Mikhail Klimentyev | Sputnik | via Reuters

The Central Bank of Russia on Friday held its monetary policy steady and maintained its key interest rate at 20%, but warned of considerable uncertainty as the country’s economy undergoes a “large-scale structural transformation.”

In late February, shortly after Russian forces invaded Ukraine, the CBR more than doubled the country’s key interest rate from 9.5% to 20% in an effort to prop up its plunging currency and mitigate the impact of tough international sanctions.

In its statement Friday, the CBR said the sharp increase in its key rate had “helped sustain financial stability.”

“The Russian economy is entering the phase of a large-scale structural transformation, which will be accompanied by a temporary but inevitable period of increased inflation, mainly related to adjustments of relative prices across a wide range of goods and services,” it said.

“The Bank of Russia’s monetary policy is set to enable a gradual adaptation of the economy to new conditions and a return of annual inflation to 4% in 2024.”

The ruble sank to record lows against the dollar on the back of a barrage of new sanctions and penalties imposed on Moscow by the U.S. and European allies, before moderating in recent weeks. The currency sat at just over 104 to the dollar following the decision Friday.

Earlier this week, Russia managed to stave off a historic debt default by completing some of its sovereign bond payments in dollars, Reuters reported. The Russian Finance Ministry said Friday that it had met its obligations to pay coupons on dollar-denominated eurobonds in full.

The CBR’s large quantities of foreign currency reserves were targeted by Western sanctions that aimed to render them almost inaccessible, preventing policymakers from mitigating the depreciation in domestic assets.

Three takeaways

While the decision was expected, the central bank’s statement gave some insight into how it views the economic outlook for Russia at present.

William Jackson, chief emerging markets economist at Capital Economics, said there were three key takeaways, the first of which was that the central bank seems to think it has done enough with last month’s emergency hike to stabilize the financial system and prevent a run on Russian banks.

“Second, the CBR sees sanctions and a shift by the Russian government towards autarky and isolationism as something that is here for the long haul,” Jackson said, noting that the statement mentioned the “large-scale structural transformation” on several occasions.

“And third, despite that, policymakers at the CBR are trying to maintain a semblance of macroeconomic orthodoxy. The over-riding focus of the statement was on the balance of inflation risks and that monetary policy would remain tight to prevent second-round effects from the current inflation spike from taking hold.”

This may indicate that policymakers aim to roll back the current capital controls, revert to a floating ruble and return the focus of monetary policy to inflation-targeting eventually, Jackson suggested.



Source

London IPO fundraising hits a three-decade low in another blow to the UK capital
World

London IPO fundraising hits a three-decade low in another blow to the UK capital

City of London skyline with 20 Fenchurch Street, affectionately nicknamed the Walkie Talkie, in London, United Kingdom. Mike Kemp | In Pictures | Getty Images Fundraising from London IPOs slumped to at least a three-decade low in the first half of this year, new data showed on Friday – raising fresh questions about the fading […]

Read More
Defense tech stocks have surged – and analysts say these names have higher to go
World

Defense tech stocks have surged – and analysts say these names have higher to go

From the battlefield to the halls of Congress, a shake-up is underway that will change how armed forces around the world prepare for conflict and engage with adversaries. June began with a wake-up call about how versatile and effective drones could be in warfare. After 18 months of planning, Ukraine successfully smuggled containers armed with […]

Read More
A year after its landslide win, Britain’s Labour Party is navigating a tougher-than-expected path
World

A year after its landslide win, Britain’s Labour Party is navigating a tougher-than-expected path

British Prime Minister Keir Starmer and his wife Victoria Starmer react as they greet Labour campaigners and activists at Number 10 Downing Street, following the results of the election, in London, Britain, July 5, 2024.  Toby Melville | Reuters It’s been one year since Labour returned to power in a landslide victory that appeared to show […]

Read More