The Bank of Russia’s board of directors on Friday decided to keep the benchmark interest rate for its operations unchanged at 7.50 percent and warned that the «partial mobilization» ordered by the war in Ukraine may fuel inflationary pressures in the medium and long term.
Thus, while the institution led by Elvira Nabiullina believes that the «partial mobilization» will serve «as a brake» on consumer demand and inflation in the coming months, it warns that «its subsequent effects will be pro-inflationary» as it adds to supply-side constraints.
In this regard, it notes that a significant proportion of companies are still facing difficulties in production and logistics, while labor market constraints are increasing, driven in part by «partial mobilization.»
«While partial mobilization may primarily create disinflationary pressure in the coming months due to weak consumer demand, its downstream effects will be pro-inflationary as it adds to supply-side constraints in the broader economy,» he explains.
As for economic developments, the Bank of Russia has highlighted that annual inflation continues to gradually decelerate, which allowed it to moderate to 13.7 percent in September from 14.3 percent in August. According to the latest data, recorded on October 21, inflation was 12.9 percent.
Looking ahead to the year as a whole, the bank expects Russia’s annual inflation rate to range between 12 and 13 percent in 2022 before decelerating to a range between 5 and 7 percent in 2023 and returning to the target of 4 percent in 2024.
Likewise, in its baseline scenario, it forecasts a GDP contraction of 3 to 3.5 percent in 2022 and that in 2023 the GDP growth rate will remain negative, with a contraction range of 4 to 1 percent, although it is confident that GDP will return to growth in the second half of next year to reach an expansion rate of 1.5 percent in 2024 and 2.5 percent in 2025.
