Russia’s central bank warns of “massive structural” economic transformation-Reuters

Russian President Vladimir Putin chairs a meeting with members of the Security Council via a video link at the Novoogaryovo State Capitol on the outskirts of Moscow, Russia, on February 18, 2022.

Mikhail Klimentiev | Sputnik | Via Reuters

The Central Bank of Russia maintained monetary policy on Friday, maintaining benchmark interest rates at 20%, but warned of considerable uncertainty as the country’s economy underwent “major structural changes.”

In late February, shortly after Russian troops invaded Ukraine, CBR more than doubled the country’s key interest rates from 9.5% to 20% to support currency depreciation and mitigate the effects of severe international sanctions. rice field.

In a statement on Friday, CBR said the surge in key rates “helped maintain fiscal stability.”

“The Russian economy is entering a stage of major structural transformation, which is accompanied by a temporary but unavoidable rise in inflation, mainly related to the adjustment of relative prices for a wide range of commodities and services.” He said.

“The monetary policy of the Central Bank of Russia should be able to gradually adapt the economy to new conditions and bring the annual inflation rate back to 4% by 2024.”

The ruble fell to record lows against the dollar following the barrage of new sanctions and penalties imposed on Moscow by US and European allies before easing in recent weeks. After Friday’s move, the currency settled at just over $ 104.

Earlier this week, Russia was able to circumvent historic defaults by making some of its sovereign debt payments in dollars, according to Reuters. Russia’s Treasury said Friday that it had fulfilled its obligation to pay full coupons for dollar-denominated Eurobonds.

CBR’s large foreign exchange reserves are subject to Western sanctions aimed at making them almost inaccessible, preventing policy makers from mitigating the depreciation of domestic assets.

3 points

Although the decision was expected, a central bank statement provided insight into how Russia’s current economic outlook looks.

William Jackson, Chief Economist of the Emerging Markets for Capital Economics, said there were three key points. .. Bank.

“Second, the CBR sees sanctions and the Russian government’s transition to self-sufficiency and isolation in the long run,” Jackson said in a statement referring to “major structural changes.” Said that.

“And third, nevertheless, CBR policymakers are trying to maintain macroeconomic legitimacy similarity. The main focus of this statement is to balance inflation risk. , Monetary policy was said to remain tight to prevent the effects of the second round. The current peak of inflation has not taken hold. »»

This may indicate that policy makers are aiming to roll back current capital regulation, return to the floating ruble, and return monetary policy to the inflation target, Jackson suggested.