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MOSCOW (Reuters) -Russia’s central bank held its key interest rate at 7.5% at its final meeting of the year on Friday but pointed to inflation risks ahead and said the country’s military mobilisation was adding to labour shortages.
“The medium-term balance of risks remains tilted towards pro-inflation risks,” the bank said in a statement. “Labour shortages are increasing in many industries amid the effects of the partial mobilisation.”
The bank’s rate-cutting spree ended in September, after the gradual reversal of an emergency rate hike to 20% in late February that followed Russia’s decision to send tens of thousands of troops into Ukraine and the imposition of wide-ranging Western sanctions in response.
The Bank of Russia has made six rate cuts since February, but has now held rates at 7.5% at its last two meetings. In October it warned that the partial military mobilisation, ordered by President Vladimir Putin in September, could stoke longer-term inflation due to a shrinking labour force.
Friday’s rate hold was in line with a consensus forecast of analysts polled by Reuters earlier this week.
Domestically, the bank said pro-inflation effects may be more pronounced than in its baseline scenario due to a reduction in the labour force and a change in the employment structure.
The mobilisation order saw hundreds of thousands of Russians flee the country or join the army.
Inflation, which the central bank targets at 4%, stood at 12.65% as of Dec. 12, according to the economy ministry. The central bank’s year-end inflation forecast is 12-13%.
The central bank is caught in a bind between high inflation, which dents living standards, and an economy in need of stimulation via cheaper credit to address the negative effects of sweeping Western sanctions imposed in response to Russia’s intervention in Ukraine.
Russia’s economy, saddled with subdued consumer demand, falling disposable incomes and labour shortages, is on shaky ground, with mobilisation set to be a significant drag in 2023.
Central Bank Governor Elvira Nabiullina will shed more light on the bank’s forecasts and policy in a media briefing at 1200 GMT.
The first rate-setting meeting of 2023 is scheduled for Feb. 10.
Reporting by Alexander Marrow; Editing by Mark Trevelyan
