Western sanctions, labor shortages and lagging supply could affect growth, warned Elvira Nabiullina
The Bank of Russia (CBR) kept its key rate unchanged at 7.5% on Friday, saying the economy would recover this year and rise by up to 2%. Commenting on the decision, CBR Governor Elvira Nabiullina said some factors could threaten the regulator’s goal of bringing inflation back to its 4% target.
“About the risks that could lead to a deviation of inflation from the baseline forecast. There are pro-inflationary factors, we expect some acceleration, a rise in underlying inflation, but we do not expect double digits,” she stated.
According to the central bank, consumer demand has picked up as the Russian economy has adjusted to the sanctions faster than expected, while supply has not kept pace. This led to lower inflation, Nabiullina added.
“In addition, we will continue to closely monitor the implementation of fiscal policy,” he added. she says. “We start from the budgetary plans that the government has defined, but if the structural budget deficit widens, this will be one of the reasons for the tightening of monetary policy. But we have to look at all the factors, there may be disinflationary factors that will offset the pro-inflationary influences.
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According to the CBR, inflation is slightly lower than its February forecast, while GDP momentum is higher. “This year, we expect the economic recovery to continue, which could be accompanied by an intensification of inflationary pressures. This will depend to a large extent on demand-side factors,” Nabiullina said, noting that while there were signs of accelerating inflation “this will threaten to reach 4% inflation in 2024.” In this case, the central bank could raise the key rate at future meetings.
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