Head of Central Bank suggested key rate increase in July

The Board of Directors of the Bank of Russia decided to maintain the key rate at 16%, contrary to the market's expectations and experts' predictions —some banks even raised rates on loans and deposits in advance.

“The increase in the key rate in the second half of last year made it possible to slow down price growth significantly. However, in April and May, there were signals that the process was being suspended. In April, the price growth rate returned to 6% annualized, and, judging by operational data, it remained elevated in May.

After four months of decline, household inflation expectations increased in May. Analysts and financial market participants also raised their forecasts.

This increases the risk that sustainable inflation rates may not slow as quickly as assumed in the baseline scenario. In this case, an additional increase in the key rate will be required,” Elvira Nabiullina said at a briefing following a meeting of the Central Bank's Board of Directors.

The head of the Bank of Russia believes that the most likely scenario is that the economy's overheating will decrease in the second quarter. Otherwise, the rate will have to be raised at the meeting on July 26. For example, the option of increasing it to 18% was discussed yesterday.

The head of the Central Bank believes the upcoming tax increase will not affect the acceleration of inflation: additional fees will only cover increased budget expenses.

Author: Elina Akhmetova