The chairman of the Bank of Russia, Elvira Nabiullina, did not rule out an increase in the key rate if the disinflation process stops. This is stated in the statement of the head of the Central Bank following the meeting of the Board of Directors following the meeting of the Board of Directors, at which the key rate was maintained at 16%.
At the same time, E.Nabiullina stressed that this scenario is not a basic one. In this alternative scenario, the growth in demand for goods and services will continue to significantly exceed the possibilities of expanding production.
This overheating will be signaled by the rapid expansion of consumer activity and lending, and the strengthening of the rigidity of the labor market. All this will affect the dynamics of inflation and inflation expectations.
In the baseline scenario, the Bank of Russia raised its estimate of GDP growth to 2.5–3.5% for 2024, while maintaining a forecast of 1-2% for 2025. In this scenario, the economy will begin to move to a more balanced growth rate from the second quarter. The gap between supply and demand will gradually narrow, supporting a slowdown in price dynamics.
In this case, the accumulated increase in the key rate will be enough to return inflation to levels close to the target by the end of this year.
Such a development, according to E.Nabiullina, suggests the beginning of a reduction in the key rate in the second half of the year. When exactly this will happen depends on the rate of slowdown in the current price growth.
With disinflation too slow, the head of the Central Bank did not rule out maintaining the current key rate until the end of the year.
