Russian Federation Interest Rate

The Bank of Russia hiked its benchmark interest rate by 200bps to 18% in its July 2024 decision, consistent with signals from its June meeting and expectations from financial markets, and stated that it considers more rate hikes should they be needed to control inflation. The hike marked the resumption of the central bank’s tightening cycle after keeping the prior terminal rate of 16% since December of 2023. The CBR noted that domestic demand continued to outstrip the limited supply capacity that the Russian economy is able to offer, triggering aggressive inflationary pressures and warranting higher borrowing costs. Besides the pressure on supply capacity from Western sanctions, the CBR also noted that labor shortages continue to grow amid the fallout of President Putin’s military mobilization and the resulting diaspora of working-age men. The central bank now expects inflation to end 2024 within the 6.5%-7% range before declining toward the 4% range in the latter part of 2025.