In its monetary policy meeting summary published on July 1, the Central Bank of Russia stated that conditions in the domestic fuel market could exert a more prolonged impact on inflation than previously anticipated.
The Central Bank noted that growth in gasoline and diesel prices had accelerated since mid-May. It emphasized that fuel impacts headline inflation both directly and through secondary channels, including higher transportation and production costs, as well as inflation expectations among households and businesses.
Currently, the key interest rate stands at 14.25% per annum: on June 19, the mega-regulator cut it by 25 basis points. Prior to this, the rate had been gradually declining from a peak of 21%.
If fuel price growth proves persistent, the Bank of Russia may decelerate its further monetary easing or maintain the rate above previous expectations. In its June 19 policy statement, the regulator had already noted that pro-inflationary risks might necessitate a higher policy rate trajectory than forecasted in its April macroeconomic scenario. For the economy, this translates into higher borrowing costs for businesses and households, exerting downward pressure on mortgage lending and consumer demand, analysts note.