Additional budget expenditures and the associated widening of the federal budget deficit in 2024 have pro-inflationary effects, the Central Bank of the Russian Federation has admitted.
The Central Bank of the Russian Federation raised the key interest rate by 200 basis points (bps) simultaneously – to 21% per annum, which is the highest figure since February 2003. The central bank announced this on Friday, October 25.
It is indicated that the corresponding decision was made due to the high level of inflation beyond the expectations. In September, seasonally adjusted inflation in the Russian Federation rose to 9.8% in annualized terms after 7.5% in August.
“Inflation expectations continue to rise Domestic demand growth is far outpacing the possibility of expanding the supply of goods and services and the associated widening of the federal budget deficit in 2024 has inflationary effects,” the report said.
The Russian regulator believes that it is necessary to further strengthen monetary policy to ensure that inflation returns to its goals and reduce inflation expectations. It is also possible to increase the key rate at the next meeting.
At the same time, the Russian Central Bank expects that in 2025 annual inflation will decrease to 4.5-5.0% in 2025, and in 2026 – to 4.0%.
With such news, the Russian stock market fell. The Moscow Exchange index fell to 2666 (-1.91) after the morning rose above 2730 points. The RTS index reached 869 points (-1.83%). Prices of most blue chips on the Moscow Exchange fell by 2.9%.
Earlier, the media reported that the Russian authorities were preparing for the national currency to fall below the psychological threshold of 100 rubles per dollar. This could prove beneficial for the state budget amid planned spending increases next year.
This week it became known that the State Duma of the Russian Federation has immediately allocated an additional 1.5 trillion rubles for the war in Ukraine.
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Source: korrespondent
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