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Russian Central Bank raises key rate to 19% as inflation surges

The Central Bank of Russia raised its key interest rate for the seventh time since July 2023, when it stood at 7.5% per annum.
byBohdan Ben
13/09/2024
2 minute read
Russian ruble coins, illustrative image.
Russian Central Bank raises key rate to 19% as inflation surges

The Central Bank of Russia (CBR) announced a significant increase of 100 basis points, bringing the key rate to 19.00% on 13 September 2024.

This marks a 2.5-time increase in Russia’s key rate during its war against Ukraine, as Russia’s economy starts feeling the pressure of significant war costs. At the same time, Russia’s oil income remains high amid high oil prices worldwide and the reluctance of Western countries to ban its fleet from transporting Russian oil.

In its statement, the CBR noted that current inflationary pressures in Russia remain high. The annual inflation rate for 2024 is expected to exceed the July forecast range of 6.5-7.0%. As of 9 September, the annual inflation rate in Russia stood at 9.0%, with no signs of decreasing.

The bank emphasized that domestic demand growth continues to significantly outpace the expansion of goods and services supply. This imbalance necessitates further tightening of monetary policy to restart the disinflation process, lower inflation expectations, and ensure inflation returns to the target in 2025.

Economic data for the second quarter of 2024 and operational indicators for July-August suggest a slight slowdown in Russian economic growth. The CBR attributes this primarily to supply constraints and declining external demand rather than cooling domestic demand.

The labor market remains tight, with unemployment at historic lows. A significant labor shortage persists, especially in manufacturing industries, leading to wage growth that continues to outpace labor productivity increases.

Consumer activity, while showing some deceleration, remains high, supported primarily by growing household incomes. Significant investment demand is maintained by both budgetary stimuli and companies’ own funds accumulated in recent years.

The CBR does not rule out the possibility of further key rate increases in upcoming meetings. The next meeting of the CBR Board of Directors to discuss the key rate is scheduled for 25 October 2024.

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