Russian Econ Ministry factors monetary policy tightening, risk of 'untimely' easing into economic forecast

MOSCOW. Sept 25 (Interfax) - Further tightening of monetary policy or its "untimely" easing could have a negative impact on investment activity and lead to additional budget expenditures on accumulated obligations under subsidized lending programs, the forecast for Russia's socioeconomic development in 2024-2026 published on the Economic Development Ministry's website states.

The realization of this risk is factored into the conservative scenario of the forecast, the document said. This scenario presumes that the Central Bank of Russia (CBR) will pursue a tighter monetary policy, which "will lead to lower rates of lending to the economy, which will affect investment activity," the forecast said.

After six consecutive decisions to leave its key interest rate unchanged, the CBR began raising it in July, when it was hiked by 100 basis points to 8.5% from 7.5%, where it had been since September 2022. Then, at an extraordinary board meeting on August 15, the CBR raised the rate by a whole 350 points to 12% and a month later, on September 15, it hiked the rate by another 100 points to 13%. After the September board meeting, the CBR said it would assess the advisability of further increasing the key rate at upcoming meetings.

The Economic Development Ministry factored the tightening of monetary policy into its medium-term forecast.

"In 2023 we expect GDP growth of 2.8%. In 2024, GDP growth will amount to 2.3%. We believe that the current budget and credit momentum will continue into next year. But the rate [of growth] factored into the final estimate is lower than it would have been without the current tightening of monetary policy. We factored this [tightening] into the forecast," Economic Development Minister Maxim Reshetnikov said at a government meeting.