In a decision contrary to the expectations of many analysts, the Board of Directors of the Bank of Russia decided on June 7, 2024, to maintain the key interest rate at 16%. This marks the fourth consecutive meeting where the rate has remained unchanged, with the last adjustment occurring in December 2023.

Market Expectations and Reactions

Many financial analysts had anticipated an increase in the key rate to 17%, based on the Central Bank’s recent communications. The Bank’s Governor, Elvira Nabiullina, had recently indicated that high rates would persist longer than previously expected, citing ongoing challenges in achieving sustainable inflation reduction.

Inflation and Economic Indicators

• Inflation Rate: According to Rosstat, inflation in Russia accelerated to 0.17% in the week from May 28 to June 3, 2024. The Ministry of Economic Development reported an annual inflation rate of 8.17%.
• Central Bank’s Target: The Bank of Russia aims to reduce inflation to its target level of 4% and maintain it at that level. Despite the high current inflation rate, the Central Bank chose not to raise the interest rate, a decision that was unexpected by many market participants.

Industry Reactions

• Elvira Nabiullina’s Comments: On June 6, 2024, during the St. Petersburg International Economic Forum (SPIEF), Nabiullina reiterated the Central Bank’s commitment to its 4% inflation target. Her comments led to speculation among market participants about a potential rate hike.
• Financial Leaders’ Responses:
  • Andrey Kostin, Head of VTB: Interpreted Nabiullina’s remarks as an indication that a rate hike was imminent.
  • German Gref, Head of Sberbank: Adopted a more cautious stance, acknowledging the possibility of a rate hike but also considering that the rate might remain at 16%.

The decision to keep the key rate unchanged suggests a cautious approach by the Central Bank, balancing the need to control inflation with the potential impacts on economic growth and financial stability. This move will be closely monitored by market participants and policymakers as they navigate the evolving economic landscape.

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