Russian policy toolkit mixes rate rises and price caps
Tuesday, July 20, 2021
Significance
This is high enough to worry the Central Bank of Russia (CBR): inflation has hovered around 4%, the bank's target level, for the last four years. The CBR has responded with monetary tightening, and the government with price controls on food and some exported commodities.
Impacts
- Rising domestic interest rates and higher global oil prices will support the ruble.
- Elevated inflationary expectations will discourage long-term investment and personal savings.
- Higher interest rates will improve banks' net interest income and support banking profitability in 2021.