Russian central bank updates GDP and inflation forecasts

Russia's economic contraction is expected to be much smaller than previously thought, according to the latest report by the Central Bank of Russia (CBR).

In an improved outlook issued on Friday, the regulator now sees the GDP declining by 3% to 3.5% this year, versus the previously projected 4-6% drop. In late April, it had expected GDP to shrink 8-10%. The central bank forecasts the economy returning to growth in 2024-25.

On Friday, the CBR also held its key interest rate at 7.5% after six cuts in a row, citing risks of higher inflation. “There is a balance between proinflationary and disinflationary risks over a short-term horizon. As to a medium-term horizon, proinflationary risks still dominate and have grown slightly since mid-September,” the regulator said.

According to the report, annual inflation continues to “slow down gradually.” In September, growth in consumer prices decelerated to 13.7% in annual terms (after 14.3% in August) and declined further to 12.9%, as of October 21.

Despite the progressive decline, inflation expectations of households and businesses are high and have grown slightly, relative to the summer months, the CBR said. Analysts’ medium-term inflation expectations are anchored close to 4%, the regulator added.

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