Russia Set to Hold Rate as Trade Turmoil Clouds Path for Economy

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(Bloomberg) — Russia’s central bank is set to hold interest rates at an all-time high as global trade tensions compound risks for the war economy even amid signs that inflation is easing.

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The Bank of Russia will keep the key rate at 21% for a fourth meeting on Friday, according to all economists surveyed by Bloomberg. Governor Elvira Nabiullina is scheduled to hold a briefing at 3 p.m. in Moscow. 

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While a rally in the ruble has contributed to a slowdown in seasonally adjusted price growth, Nabiullina confronts an outlook for the economy clouded by what she called “tectonic changes in world trade” due to US President Donald Trump’s tariff policies.

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“The inflation slowdown is largely due to ruble appreciation, the sustainability of which is not so obvious given trade wars and a decline in oil prices,” Olga Belenkaya, an economist at Finam in Moscow, said in a note. The only option on the table will be to maintain the rate at the current level, she said. 

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Seasonally adjusted price growth declined to 7.1% in March from 7.5% in the previous month, the central bank said in a report last week. Annual headline inflation, which is hovering around 10%, is expected to start gradually easing from May, provided there are no new shocks, according to the bank.

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Nabiullina’s team, which last year battled price growth amid Russia’s war in Ukraine with 500 basis points of rate hikes, now sees the “beginning of a gradual exit from the phase of acute overheating” of the economy, according to the report. 

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Economic activity is increasing slower than in previous quarters, while an impulse from lending declined and turned negative, close to numbers last seen in 2020. This led to a decline in prices for goods that had previously surged on credit-driven consumption, including cars and electronics, the central bank said. 

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“The economic picture and the still strong ruble could allow the Bank of Russia to change its hawkish rhetoric this time,” Oleg Kouzmin, an economist at Renaissance Capital in Moscow, said in a note. But a deterioration in external conditions — particularly, a drop in energy prices — will most likely mean rate setters stay cautious, he said. 

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Along with its baseline scenario for policy, the central bank has mapped out a risk scenario that accounts for severe external conditions: a global crisis, deterioration in relations between China and US, a drop in the price of Brent to $55 per barrel and an increase in sanctions pressure, limiting Russian exports. In this case, inflation would reach as high as 15% within a year, while the economy would slide into recession.