Russia is considering raising value added tax to 22 percent
If the government raises value added tax and the central bank sees inflation risks from the move, it would be logical for the bank to keep interest rates higher than without the tax changes, Deputy Finance Minister Vladimir Kolychev said on Wednesday.
Russia is considering raising value added tax to 22 percent from 18 percent, which, according to the finance ministry’s calculations, could add two percentage points to inflation readings.
“If the central bank sees risks of higher inflationary expectations it would be logical if it will have to keep interest rates higher for some time,” Kolychev said.
The proposed increase in value added tax could happen after the 2018 presidential election, where Vladimir Putin is likely to win re-election.
By then, if no new shocks occur, the central bank is expected to bring annual inflation to its target of 4 percent and gradually cut its main lending rate from the current level of 10 percent.
The central bank will hold its next monetary policy meeting on March 24, when it is seen keeping the rate unchanged.