Further key rate increase likely to be needed - Russian Central Bank's Nabiullina
MOSCOW. July 21 (Interfax) - The latest decision to raise the key rate may suffice, however, further tightening of monetary policy will most likely be necessary, Central Bank of Russia Governor Elvira Nabiullina said.
"We gave a signal that we hold open admit the possibility key rate increase at the next meetings. If you look at our key rate forecast, then at the lower bound it is possible that the current increase will suffice, but, in our opinion, rate increase at the next meetings is more likely," she said at a briefing following the meeting of the Central Bank board of directors, which decided to raise the rate by 100 basis points to 8.5% per annum.
"As for today's decision, last time we signaled that a rate increase was likely. We needed more information, we now see that inflation, primarily in its stable components, is accelerating, inflation expectations have grown as have exchange rate dynamics. [...] the market has already reacted to this signal between our meetings," she said.
Nabiullina said there had been a "substantive" discussion about raising the rate by 75 bps or 100 bps at the meeting on Friday. "Substantive, because there had been proposals for a more radical increase in the rate, partly to further minimize the need for a rate increase. But given an analysis of the situation, an assessment of all risk balances, we decided that raising the rate by 100 bps would be a better solution. The next increment will depend how the economy develops, what data come in. How the economy will react, including to our rate increment," she said.
Central Bank Deputy Governor Alexei Zabotkin said a significant part of the discussion was devoted to "tactics for responding to inflationary risks." "There were proposals for a stronger and faster response, but in the end the decision was that we should still look at how the situation is unfolding and what data comes in from the point of view of the intensity of inflationary pressure, as well as the evolution of inflation expectations," he said.
Nabiullina also said that the updated forecast reflected an upward revision of the neutral rate estimate by 0.5 percentage points to 1.5-2.5% in real terms or 5.5-6.5% in nominal terms. The neutral rate estimate was raised due to an increase in the risk premium for the Russian market and increase in the external neutral rate, she said.