Russian Central Bank signals sharp rate hike amid soaring inflation

The Central Bank of the Russian Federation has warned that interest rates may sharply rise at its meeting in July. "The regulatory body noted the lack of slowdown in credit activity, which may indicate insufficient tightness of monetary policy," writes "Kommersant."

Official data on the Russian economy should be taken with a hefty dose of skepticism due to the Kremlin's propaganda amidst the war in Ukraine. Nevertheless, the Russian statistical agency Rosstat does not hide that inflation in the country is rising.

In April 2024, the office reported a year-over-year price increase of 7.8%. In May, inflation in Russia officially stood at 8.3% year-over-year. The Russian inflation target, however, is 4%. The central bank assumed it would be achievable in 2025.

Kommersant reports that part of the Bank of Russia's board sees risks to achieving the inflation target next year. "The growth in credit activity and consumption is not slowing down; inflation may become entrenched at the currently elevated level or even begin to rise," the body explained in its summary of the early June meeting.

The Bank of Russia's board is considering two options for the July meeting: leaving the main interest rate at 16% for the fourth month in a row or raising it to 17-18%.

The largest independent daily newspaper in Russia recalls that the central bank, at the beginning of 2024, gave the green light for a significant reduction in the base interest rate in the second half of the year. However, many indicators suggest that this scenario will not materialize.