10 Jun 2024 14:58

Russia's economy at peak of overheating - Central Bank director

KRASNODAR. June 10 (Interfax) - The Russian economy is currently at the peak of being overheated, Kirill Tremasov, director of the monetary policy department of the Central Bank of Russia, said.

"I think that the peak of economic overheating is the top point of the business cycle somewhere here, we are somewhere nearby, though what trajectory the slowdown and cooling of demand will take remains a matter of our careful study," Tremasov told journalists.

"This is a question that was one of the important points of discussion at the last board of directors meeting, whether we have passed the peak or not. Judging by inflation, we have passed it. If you remember, the current rate of price growth in the autumn, the speed at which prices change, was double-digit. After we hiked the key rate to 16% per annum, price growth decelerated sharply. In recent months, prices have grown by an average of 6%-7% per annum. Inflation has slowed down, though it has not yet returned to the target," Tremasov said.

The Bank of Russia now sees the greatest signs of overheating in the consumer demand segment. This is largely because of high income growth, Tremasov said. "We have not grown at the rate at which wages and incomes are growing now for over 15 years," he said.

This income growth is occurring amid an "unprecedented labor shortage," Tremasov said. This is what companies put in first place in terms of their business development prospects; not difficulties in attracting financing due to high rates, he said.

"If now, when the economy is overheated and demand is overheated, we try to stimulate business restructuring by lowering rates, believe me, everything will go into rising prices," he said.

The Russian Central Bank's April inflation forecast for 2024 was 4.3%-4.8%. It forecasts Russian GDP growth in 2024 to be in the range of 2.5%-3.5%. The Central Bank will clarify its medium-term forecast following the key meeting of the board of directors on July 26.

"If we see that the situation in the economy, the situation with inflation deviates from our forecasts, then we can decide to increase the key rate," Tremasov said.

"Now, inflation has deviated from target, and our task is to return inflation to target," he said.

The Bank of Russia Board of Directors decided on June 7, 2024 to maintain the key rate at 16% per annum. At the same time, the Central Bank admitted there was a possibility the key rate could be raised at the next meeting. Central Bank Chairman Elvira Nabiullina noted that the rate in July could be increased "significantly" (in increments of more than 1 percentage point).