The Bank Of Russia Could Raise The Interest In 2023 Due To Inflation Risk

The bank kept its benchmark interest rate at 7.5% at its last meeting of the year on December 16 but altered its wording slightly to recognize rising inflationary concerns, citing a recent military deployment as contributing to labor shortages.

“There is an agreement that if (a rate rise) is required to stabilize inflation at 4% by 2024, we will do so,” Zabotkin said in a Tuesday interview with RBC.

As dangers, he cited strong inflationary expectations, a labor shortage, logistical difficulties, a higher-than-expected budget deficit trajectory, and deteriorating external circumstances.

“This is a vast bouquet of pro-inflationary elements,” Zabotkin said. “The necessity for interest rate increases will be driven by (these variables), in whatever mix and magnitude they inevitably materialize in 2023.”

Zabotkin also said that Russia's economy is experiencing a fundamental transformation that will take longer than a usual cyclical slump.

“If the economy expands at the high end of our October base prediction, we will recover to 2021 levels sometime in 2025,” he said.

According to a Reuters poll conducted last week, the central bank will have little flexibility to decrease interest rates in 2023 since inflation is expected to continue above the target.

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