That Bank of Russia could raise interest rates next year if inflation risks such as Labor shortages and import restrictions are having a significant impact, according to the deputy governor Alexey Zabotkin.

What happened: “There is an understanding that if (a rate hike) is needed to stabilize inflation at 4% by 2024, we will do so,” Reuters reported, citing Zabotkin’s interview with RBC.

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The Central Bank of Russia left its key interest rate unchanged at 7.5% at its last meeting of 2022 on December 16. However, she slightly altered her rhetoric to acknowledge the growing inflationary risks and explained as much a recent military mobilization contributed to labor shortages, the report said.

structural change: As risks, Zabotkin cited high inflation expectations, a labor crisis, logistical constraints, the higher-than-expected development of the budget deficit and deteriorating external conditions.

“Taken together, this is a pretty big bunch of inflationary factors,” Zabotkin said. “The need for a rate hike will be determined by (these factors) in what combination and to what extent they will eventually materialize in 2023,” he added.

Zabotkin also explained that the structural change in the Russian economy is a process that takes longer than a typical cyclical downturn.

“If the economy develops near the upper end of our October baseline forecast, then we will return to 2021 levels sometime in 2025,” he said, according to the report.

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