Russia will contain inflation this year

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The country will nearly meet its consumer price index target in 2024, economist Aleksander Isakov forecasts

Inflation in Russia will be lower this year, as the government will nearly meet its 4.0 – 4.5% target, Bloomberg Economics reported on Monday, citing Aleksandr Isakov, its leading expert on Russia and Central and Eastern Europe.

Isakov said that if the country’s central bank avoids a sharp reduction of the key interest rate from the current 16%, consumer price index inflation will be in line with objectives.

“The Bank of Russia’s key rate has peaked. Policymakers’ next job is avoiding premature easing. While most central banks face the same task in 2024, the Bank of Russia has fresh experience of what this mistake may cost. Its front-loaded easing in 2022 resulted in a ruble rout and drove price growth to triple its 4% inflation target in 2023. If it keeps the policy rate above 12% throughout 2024, inflation will come down to 4.7% year-on-year in December 2024,” Bloomberg Economics’ latest quarterly outlook on global monetary policy quoted Isakov as saying.

The Bank of Russia more than doubled the key rate in 2023 to 16% in a series of consecutive hikes, citing high inflationary pressure. In December, the regulator signaled that the end of the tightening cycle may be approaching. Central bank governor Elvira Nabiullina warned, however, that “until we are confident that there is a steady downward trend in price growth and inflation expectations, the key rate will stay high for as long as necessary.

According to official projections, annual inflation hit 7.5% in 2023, a significant drop from the 11.94% recorded in 2022. Given the country’s monetary policy stance, annual inflation in Russia will decline to 4%-4.5% in 2024 and stay close to 4% going forward from there, the central bank forecast last month.

The regulator may start lowering the rate in March or April, Isakov said in December in an analysis piece for the Russian weekly Argumenty i Fakty. By December 2024, the key interest rate may ebb to 12-13%, he added.

The Bank of Russia will hold its next key rate review meeting in February.

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