Russia: Central Bank Raises Prime Rate

The Central Bank of Russia (CBR) raised its benchmark rate by 2% for the first time in 7 months, which immediately went up from 16% in December 2023 to 18%. The current level is the highest since April 2022, when the rate was 20 percent after the start of the Russian military operation in Ukraine.

Central Bank Chairman Elvira Nabiullina did not rule out that the prime rate could be raised again before the end of the year. “The Russian economy is overheating, and very much so,” Nabiullina said.

The regulator attributed its decision to the urgent need to slow down price growth. According to the updated forecasts of the Central Bank of Russia, the inflation rate at the end of 2024 should reach 6.5-7% year-on-year instead of the previous estimate of 4.3-4.8 percent. The inflation rate should fall to 4-4.5 percent next year. As for the 2026-2027 two-year period, the Russian regulator left the forecast unchanged, saying the figure would be 4 percent.

At the Central Bank meeting, the forecasts for Russia’s economic growth were revised upward: the country’s gross domestic product (GDP) in 2024 will have to record growth between 3.5 and 4 percent. This is a significant increase from the Central Bank’s previous estimates, which indicated growth of 2.5-3.5 percent. In 2025, the growth rate is forecast to slow down and not exceed 0.5-1.5% (earlier it was 1-2%). In 2026-2027, the Central Bank expects growth of 1.5-2.5% and again 1.5-2.5% respectively.