MOSCOW (Reuters) – The Russian central bank will consider holding or raising interest rates at its April 23 board meeting as inflation is seen hovering above the 4% target throughout 2021, the bank’s head of monetary policy, Kirill Tremasov, said.
After slashing the key rate to a record low of 4.25% in 2020 to help the economy through the crisis sparked by the COVID-19 pandemic and a crash in oil prices, the central bank raised it to 4.5% and said more hikes would follow.
The monetary tightening took place amid rouble depreciation driven by fears of fresh sanctions against Moscow. The rouble weakness poses upside risks for inflation as it filters into consumer prices.
Geopolitical risks were not the key factor behind the March decision to raise rates, Tremasov said in an interview with Reuters. The decision surprised the majority of analysts who expected the central bank to raise rates only later this year.
“The March options that were to hold the rate or to raise it by either 25 or 50 basis points are likely to be on the table in April,” Tremasov said.
Analysts polled by Reuters in late March had generally expected the central bank to hike the key rate to 4.75% at the April 23 board meeting, lifting it further to 5.00% in the third quarter and holding it there until the year-end.
“We see the neutral range for the key rate at 5% to 6%. But the trajectory for moving to it is absolutely not predetermined,” Tremasov said, commenting on the Reuters poll.
The inflation trajectory for this year is rather predetermined by the previous monetary policy decision and one-off factors, Tremasov said, adding that monetary policy affects the economy with a lag of three to six quarters.
Inflation, the central bank’s main area of responsibility, accelerated to 5.7% in February, fanned by the weakening rouble and globally higher food prices.
Tremasov said inflation has likely peaked and started to slow in the second half of March but will not reach the 4% target earlier than in the first half of next year.
The central bank expects gross domestic product to contract year-on-year in the first quarter before returning to growth in the second, Tremasov said, adding that the bank currently is not pricing in the risk of a third wave of the pandemic in Russia.
“GDP will return to a pre-pandemic level only by the end of this year, according to our estimates.”
(Writing by Andrey Ostroukh; Editing by Katya Golubkova and Giles Elgood)