Dec. 16 (UPI) — Tight labor conditions and an adverse foreign trade climate is creating pressure on the Russian economy, though its central bank on Friday opted to hold its key rate steady at 7.5% per year.
Going against the grain established by its peers, the Bank of Russia has cut its lending rate six times this year but opted on Friday to hold the rate steady for the second consecutive month.
The bank in a statement said that consumer-level inflation was on the rise and curbing demand.
“At the same time, pro-inflation risks are up and prevail over disinflationary risks,” the bank said in a statement. “This comes as a result of rising inflation pressures from the labor market, worsening foreign trade conditions and a softer fiscal stance.”
The bank estimated inflation over the 12-month period ending in December at 12.7%, higher than the rate in either the European Union or the United States. But like its peers, the bank is forecasting a decline in inflation, to between 5% and 7% for next year, before it reaches its target rate of 4% in 2024.
Any further deterioration in global economic conditions, meanwhile, will only curb demand for Russian exports further, adding to the domestic inflationary pressures and compounding external trade problems.
Western allies have largely shunned Russian commodities such as crude oil, refined petroleum products and natural gas in response to the conflict in Ukraine. A multilateral deal covers continued exports of grain, however.
Further trade restrictions, like the upcoming limits on refined petroleum products for Europe, would create even more supply-side challenges in the Russian economy given the lack of access to raw materials.
“Companies continue to search for new suppliers, alternatives logistics and settlement methods and address challenging issues of new equipment imports and repairs of the already installed production lines,” Bank of Russia Gov. Elvira Nabiullina said. “To a greater or lesser extent, enterprises will pass their labor costs through into prices for end consumers.”
Policymakers are working to offset some of the impacts from Western-backed sanctions, though Nabiullina said not to read too much into inflationary strains in the domestic economy because the data are “overloaded with previous shocks.”
Russia’s economy may not be as damaged as expected. Economists at the Organization of the Petroleum Exporting Countries revised their global economic growth forecast for 2022 higher, from 2.7% to 2.8%, citing better-than-expected growth to the third quarter from the United States, Brazil and Russia.
Russia is party to OPEC+, the core members and non-member state allies working to prevent excessive volatility in the crude oil markets.