The Bank of Russia did not soften its rhetoric amid a scandal with government pressure on the regulator. Following the meeting of the Board of Directors of the Bank of Russia on February 10, 2022, the Central Bank decided to keep the rate at the current level of 7.5% per annum. This is stated in the message of the regulator.
The regulator notes that the risks for inflation in Russia remain at a high level, despite the fact that economic activity in the country turned out to be higher than the autumn forecasts, and inflationary expectations of the population and business began to decline. The Central Bank sees additional pro-inflationary risks in a sharp increase in budget spending, as well as in the deterioration of conditions for international trade. So far, the factor restraining inflation is the cautious behavior of the population, which has not yet returned from the trend to accumulation and is not increasing consumer activity.
During a press conference following the meeting, the head of the Bank of Russia, Elvira Nabiullina, noted that the regulator did not consider the possibility of reducing the key rate, on the contrary, there were those among the members of the board of directors who were in favor of raising the rate.
“Reducing the rate was not considered, there were proposals to raise the rate, but a consensus was formed about maintaining it and tightening the signal. We did not consider the option of raising the rate in detail,” she said.
The regulator is based on the forecast that by the end of 2023 Russia's GDP will be near zero and will be in the range from -1 to 1%, in 2024 the Central Bank expects growth in the range from 0.5 to 2.5%, and in 2025 – 1.5–2.5%. At the end of 2022, the Central Bank estimates a 2.5% drop in GDP. Inflation is unlikely to return to the Bank of Russia’s target of 4% per annum in 2023; in the baseline scenario, the regulator expects it to be in the range of 5–7% per annum, and will return to the target only in 2024.
The Bank of Russia notes that the Russian economy is still in a state of "structural adjustment" – as the regulator calls the collapse of foreign trade, the economic crisis and a large-scale restructuring of foreign trade from European to Asian markets. The key problems, according to the Central Bank, for the Russian economy come from Western sanctions, as well as from a slowdown in the global economy – they can lead to a decrease in demand for Russian exports and transfer inflationary risks already to the exchange rate.
A few days before the publication of the decision on the key rate, Bloomberg claimed that the government was dissatisfied with the independent position of the Central Bank and demanded that it soften the rhetoric regarding the key rate. Sources said that the government wanted the Central Bank to softer the rate forecast by the end of the year, which could lead to lower borrowing costs for the budget, which in January faced a record deficit since 1998. The government later issued a message in which it denied all attempts to put pressure on the regulator; traditionally, the Central Bank does not comment on anything.