Russia Central Bank Hints At Rate Hike Ahead
10 Febrero 2023 - 12:51AM
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The Bank of Russia decided to keep its key interest rate
unchanged for the third straight policy session on Friday, but
suggested that the policy would be tightened in case of further
budget deficit expansion, a fall in the currency exchange rate and
the persistent labor shortage that trigger pro-inflation risks.
The Board of Directors of the Bank of Russia decided to retain
the key interest rate at 7.50 percent, as widely expected.
"If pro-inflation risks intensify, the Bank of Russia will
consider the necessity of key rate increase at its upcoming
meetings," the bank said in the statement.
"Short-term pro-inflation risks have increased again and still
prevail over disinflationary risks," the bank said.
Any further escalation of external trade and financial
restriction would weaken foreign demand for Russian exports, which
in turn weaken the currency exchange rate, posing significant
pro-inflation risk.
Further, the bank noted that in case of further budget deficit
expansion, pro-inflation risks will rise and tighter monetary
policy may be required to return inflation to the target in 2024
and keep it close to 4 percent further on. In addition, the bank
noted persistent pro-inflation risks from the labor market.
It is now hard to argue that interest rate hikes won't be
delivered, Capital Economics' economist Liam Peach said. The
economist penciled in a 50 basis point hike to 8.00 percent in the
second quarter.
After Russia invaded Ukraine in February 2022, the central bank
hiked its interest rate sharply to 20.00 percent from 9.50 percent.
Thereafter, the bank lowered the rate by a cumulative 1250 basis
points since April.
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