Bank of Russia Keeps Key Rate at 4.25% for the Second Time in a Row

Russia’s Central Bank kept the key rate at 4.25% per annum for the second time in a row, noting the fact that disinflationary risks prevail over the medium-term horizon, according to a press release published following its board meeting on Friday, TASS reported.

“On October 23, 2020, the Bank of Russia Board of Directors decided to keep the key rate at 4.25% per annum. The epidemiological situation globally and in Russia is worsening. The situation in external financial and commodity markets remains vulnerable; increased volatility can be expected to persist in the near future, including in view of geopolitical factors. Although disinflationary risks still prevail over the medium-term horizon, the effect of short-term proinflationary factors has somewhat increased,” the regulator said.

The recovery growth of the Russian economy is slowing down amid a decline in domestic demand and the worsening of epidemiological situation, the Central Bank said.

“Flash indicators of economic activity point to a slowdown in the recovery growth of the Russian economy, which is largely related to the dynamics of domestic demand. The worsening epidemiological situation negatively influences the sentiment of households and businesses, potentially affecting both demand and supply,” the press release said.

Meanwhile, the Bank of Russia upgraded its outlook on GDP contraction for 2020 to the range of 4-5%, which is somewhat less than it was suggested in the July forecast. That is largely associated with a smaller contraction of exports than expected earlier.

The recovery growth rate of the Russian economy is projected at 3-4% in 2021, whereas in 2022-2023 GDP is expected to rise by 2.5-3.5% and 2-3%, respectively.

“If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction at its upcoming meetings. In its key rate decision-making, the Bank of Russia will take into account actual and expected inflation dynamics relative to the target and economic developments over the forecast horizon, as well as risks posed by domestic and external conditions and the reaction of financial markets,” the press release said.

The next rate review meeting of the Central Bank’s board of directors is scheduled for December 18, 2020.