27 Oct 2023 15:30

Softer budget policy for new three-year period was one of reasons for tougher monetary policy - CBR

MOSCOW. Oct 27 (Interfax) - The Central Bank of Russia (CBR), when deciding to raise the key rate by 2 percentage points at once, took into account a significant increase in expenditures compared to the previous benchmarks included in the draft federal budget for 2024 and the planning period of 2025-2026.

The main parameters of the budget for the new three-year period were presented after the September meeting of the boardl; at that time, the Central Bank proceeded from the figures envisaged by the current budget for 2023-2025.

"The updated medium-term parameters of fiscal policy assume a slower than expected decline in fiscal stimulus in the years ahead. Therefore, it is required to additionally tighten monetary policy to limit the upward deviation of inflation from target and return it to 4% in 2024," the regulator said in a statement following it rate meeting on October 27.

In the October statement, the wording regarding the risks of further expansion of the budget deficit was also practically unchanged. As before, the regulator notes that in the updated baseline scenario it proceeds from the government's decisions on the medium-term trajectory of federal budget expenditures and the budget system as a whole (except now it refers to the figures disclosed at the end of September). In case of additional expansion of the budget deficit - now relative to the project for the three-year period of 2024-2026 - pro-inflationary risks will increase again, and tighter monetary policy may be needed to bring inflation back to target in 2024 and keep it near 4% thereafter.

The draft budget for the three-year period envisages a 24% year-on-year increase in expenditures in 2024 to 36.6 trillion rubles, while in 2025 and 2026 these are projected at 34.38 trillion and 35.58 trillion, respectively.