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The decision of the Bank of Russia's board of directors proved to be resourceful: the key rate was raised by 200 basis points, bringing it to a new level of 18%. Furthermore, the Central Bank has already warned about its intention to assess the appropriateness of potential further rate hikes at upcoming meetings. Previously, the regulator had kept the rate at 16% for four consecutive times.
In the Central Bank's press release, it is noted that achieving a decrease in inflation requires additional tightening of monetary policy; however, to reach the target inflation level, significantly stricter monetary conditions need to be adopted than previously anticipated.
In the second quarter, the core inflation increased to 9.2% on an annual basis, while the annual inflation rose from 8.6% in June to 9.0% as of July 22. In light of this, the Bank of Russia revised its forecast, including the inflation outlook for 2024, which is now revised to 6.5–7.0%. With the implementation of the current monetary policy, it is expected that annual inflation will decrease to 4.0–4.5% in 2025 and remain close to 4% thereafter.
The Central Bank has consistently emphasized its goal of achieving a 4% inflation rate as early as next year, with the regulator's management expressing its intention to adhere to a strict monetary policy to achieve this goal.
On July 16, the Central Bank published several documents warning of the need to continue tightening monetary policy for a longer period than previously expected.
The main factor contributing to inflation is demand, which is growing faster than supply. The Central Bank notes the establishment of a historical peak in labor demand and its further growth. This leads to an increase in wages faster than productivity growth. The strict monetary policy should help balance this phenomenon, as noted by the Central Bank.
