CBR might raise key rate if large-scale realization of pro-inflationary risks - deputy governor

MOSCOW. Dec 27 (Interfax) - The Central Bank of Russia (CBR) might consider raising its key interest rate in 2023 depending on a combination of pro-inflationary risks and the extent to which they are realized, but perhaps monetary policy will not need to be tightened, CBR deputy governor Alexei Zabotkin said.

"There is an understanding that if [a rate hike] is needed to stabilize inflation at the target of 4% by 2024, then we will undertake to do this. In order for such a need to arise, there would have to be a significant realization of the pro-inflationary risks that the board of directors talked about after its December meeting," Zabotkin said in an interview with RBC.

These risks included higher inflation expectations, labor shortages in certain sectors, ongoing logistics restrictions and restrictions on imports, he said.

"There is a somewhat higher budget deficit trajectory. And, in addition to this, one cannot discount that external conditions, the foreign economic situation in recent weeks has become somewhat less favorable. Combined, this is a fairly big bouquet of pro-inflationary factors," Zabotkin said.

"The need to raise the rate will depend on the combination in which they are ultimately realized in 2023 and on what scale. If they are not realized, then it's quite possible that a rate hike will not be needed," Zabotkin said.

The CBR left the key rate unchanged at 7.5% at its board on December 16 and gave an indefinite signal about its future.

"We gave a neutral signal. This means that the next decision, the trajectory of the rate will depend on incoming data, on what factors will dominate - pro-inflationary or disinflationary," Central Bank chief Elvira Nabiullina said after the board meeting. However, she added that pro-inflationary risks are now dominating on both the medium-term and the short-term horizon.

CBR first deputy governor Vladimir Chistyukhin said later that the CBR will make further decisions regarding its key interest rate according to how the situation develops, but expectations are currently somewhere between the rate being left unchanged and an increase.