Russian central bank outlines major economic risks

Western sanctions, labor shortages and lagging supply could affect growth, Elvira Nabiullina has warned

The Bank of Russia (CBR) held its key interest rate unchanged at 7.5% on Friday, saying the economy will recover this year and grow by as much as 2%. Commenting on the decision, CBR Governor Elvira Nabiullina said that some factors could threaten the regulator’s goal of returning inflation to its 4% target. 

“About the risks that could lead to a deviation of inflation from the baseline forecast. There are pro-inflationary factors, we expect some acceleration, an increase in core inflation, but we do not expect double-digit figures,” she stated.

According to the central bank, consumer demand has been recovering as the Russian economy has adapted to the sanctions faster than expected while supply has failed to keep up. This has resulted in lower inflation, Nabiullina added.

“In addition, we will continue to closely monitor the implementation of the budget policy,” she said. “We proceed from budget plans that the government has outlined, but if the structural budget deficit widens, it will be one of the grounds for tightening monetary policy. But we have to look at the whole set of factors, there may be disinflationary factors that will compensate for pro-inflationary influences.” 

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According to the CBR, inflation is slightly below its February forecast, while GDP dynamics are higher. “This year we expect the economic recovery to continue, which may be accompanied by an intensification of inflationary pressure. This will, to a large extent, depend on demand-side factors,” Nabiullina said, noting that if there are signs of an acceleration in inflation “that will threaten achieving 4% inflation in 2024.” In that case, the central bank may need to raise the key rate at future meetings.

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