Evgeny Goryunov on the decision of the April meeting of the Central Bank of Russia to keep the key rate at 21%

"Monetary conditions remain quite tight and the rates are likely to remain high for quite a long time. Most likely, the rate reduction cycle is postponed till H2 of this year. In the current press release, the regulator reminded that under the baseline scenario of the macroeconomic forecast (and the Russian economy still generally follows it), it is expected that the average rate for 2025 will be in the range of 19.5%-21.5%. If the Central Bank expects the key rate to be in this range by the end of the year, then it does not plan to considerably reduce the rate in 2025. It turns out that if some significant macroshocks do not take place, the Central Bank of Russia will keep the rate at about 20%, and its reduction, if it occurs, will be purely cosmetic. In my opinion, this is a rather harsh signal.

On the other hand, this time the Central Bank of Russia did not mention the possibility of a rate hike at the next meeting, despite the fact that this option was mentioned last time. This means that the regulator no longer sees the risks of a reversal of inflationary trends. In other words, the monetary authorities have currently taken a wait-and-see approach and are not planning any sudden movements. They maintain tight monetary conditions by monitoring disinflation processes.

The Central Bank of Russia refers to the overheated labor market as a reason for maintaining high rates. On the one hand, unemployment is really very low now, so in this sense it is fair to talk about overheating of the economy. On the other hand, unemployment itself is extremely inert, so it is highly likely that unemployment will remain low even when output returns to potential levels. Therefore, it seems to me that low unemployment alone cannot be a decisive obstacle to easing monetary policy. A likely increase in corporate bankruptcies in the coming quarters cannot be ignored. The combination of declining inflation and a prolonged period of high interest rates is putting real sector enterprises in a difficult situation. I would carefully follow the dynamics of the relevant indicators," Evgeny Goryunov said.