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Russia's central bank keeps benchmark interest rate at 7.5%, points to high inflation expectations

Alexander Maro

MOSCOW (Reuters) – Russia’s central bank held its main interest rate at 7.5 percent on Friday, ending a months-long cycle of rate cuts, as it noted Rates picked up inflation expectations and warned that some of Russia’s mobilization would have long-term inflationary effects.

Immediately after Moscow sent its armed forces into Ukraine in February 24, the central bank raised the benchmark rate to

% from 9.5 % down to mitigate risks to financial stability.

Since then, it has cut rates six times and at its last meeting in September omitted forward guidance on the need to study future emissions reductions. Maintaining rates was in line with the consensus forecast of analysts polled by Reuters earlier this week.

“Inflation expectations among households and businesses are high, rising slightly relative to the summer months,” the bank said in a statement.

“The Bank of Russia assesses that the partial mobilization will act as a deterrent to consumer demand and inflation in the coming months. However, its subsequent impact will be pro-inflationary, as it increases Supply-side constraints.”

President Vladimir Putin last month ordered the “partial mobilization” of hundreds of thousands of people for military operations in Ukraine.

The central bank targets an inflation rate of 4%, as of October .9% 25, according to the Ministry of Economy. Central Bank adjusts year-end inflation forecast from 10-% to % -16%.

” according to the forecast of the Bank of Russia , given the stance of monetary policy, annual inflation will fall to 5.0–7.0% in 2024 before recovering to 4% in 2024.”

analysts at VTB My Investments said the regulator’s signal remained neutral.

“We do not expect key rate changes in the coming months, but at the same time we see supportive factors to dominate over the course of a year,” they said in a note.

The central bank is caught between high inflation and the economy’s need to stimulate the economy in the form of cheaper credit in response to the negative impact of sweeping Western sanctions imposed in response to Russian interference in Ukraine.

The central bank slashed its GDP forecast for this year to 3-3.5% from an expected 4- 6% earlier. In late April, it had expected GDP to contract by 8-%.

The bank forecasts 2023 before GDP growth resumes 2024-16.

Central Bank Governor Elvira Nabiullina to give further clarification on the Bank at a media briefing at GMT 1200 forecasts and policies.

Next pricing meeting scheduled for December 16.

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