CBR slashes key rate by 300 bps to 14%

MOSCOW. April 29 (Interfax) - The Central Bank of Russia (CBR) Board of Governors made a decision at its meeting on Friday to reduce the key rate by 300 basis points - from 17% to 14%, the regulator said in a statement.

"The external environment for the Russian economy remains challenging and significantly constrains economic activity. With price and financial stability risks no longer on the rise, conditions have allowed for the key rate reduction," the statement reads.

Recent weekly data indicate a slowdown in current price growth rates on the back of a strengthening of the ruble and a cooling of consumer activity, the regulator said. Further inflation movements will be shaped by such impactful factors as the efficiency of import substitution processes and the scale and speed at which imports of finished goods, raw materials and components will be recovering. The Central Bank's monetary policy will take into the account the need for a structural transformation of the economy and will ensure a return of inflation to target in 2024, the CBR said.

Moving forward, in its key rate decision-making the Central Bank will take into account actual and expected inflation dynamics relative to the target and economic transformation processes, as well as risks posed by domestic and external conditions and the reaction of financial markets.

If the situation develops in line with the baseline forecast, the regulator sees room for key rate reduction in 2022.

The Central Bank forecasts inflation of 18%-23% for 2022, and then a contraction to inflation of 5%-7% for 2023, the regulator said in a statement posted on its website following the meeting of the board of directors on the key rate.

"Although still high, current growth rates of consumer prices have slowed significantly after they peaked in the first half of March. The slowdown in inflation comes largely on the back of a stronger ruble and a cooling of consumer activity. In this context, April has seen a decline in the inflation expectations of households and businesses. Further inflation movements will be shaped by such impactful factors as the efficiency of import substitution processes and the scale and speed at which imports of finished goods, raw materials and components will be recovering," the CBR said.

As on April 22, annual inflation was 17.6% after 16.7% in March. In the baseline scenario, the CBR expects that annual inflation should continue to grow in the coming months owing to the base effect and should reach 18%-23% in 2022.

The CBR's monetary policy will account for the need for structurally restructuring the economy, and it should ensure that inflation returns to the target figure in the medium term.

According to the CBR's forecast, when accounting for the ongoing monetary policy, annual inflation should decrease to 5%-7% in 2023 and return to 4% in 2024.

GDP 

The Central Bank said that Russian GDP will fall 8%-10% in 2022. The regulator said in its February forecast that it expected the economy to grow 2%-3% in 2022.

It said in the latest forecast that between 0% and 3% decline was expected in 2023 and growth of 2.5%-3.5% in 2024.

The economy will start to grow gradually in 2023. In Q4 2023, output will be up by 4.0%-5.5% on the same period in 2022. However, no growth is anticipated in 2023 as a whole due to the base effect of 2022.

"Despite the gradual change in the country and commodity structure of exports and imports as new suppliers and sales markets emerge, businesses are experiencing considerable difficulties in production and logistics," the regulator said in addition.