For the first time in six months, the Central Bank will take a pause and will not raise the key rate. At least, that’s what economists interviewed by Kommersant FM think. The regulator’s board of directors will meet after a two-month break on Friday 16 February. Previously, the Central Bank tightened policy five times in a row, bringing the key rate to 16%. Real rates adjusted for inflation are the highest on record.
So far, the results of these decisions are called intermediate: inflation remains elevated, and lending in some segments continues to grow. Nevertheless, Managing Director of Gazprombank Private Banking Egor Susin believes that further tightening from the regulator should not be expected: “It seems to me that there is a broad consensus here.
There is quite an intensive growth of deposits; in the last two or three months we have seen a significant shift towards time deposits, that is, the population returns money to banks. On the lending side, monetary policy transmission is not as strong and corporate lending is growing; on the other hand, some inflation slowdown is noticeable.
But for now the rate remains quite high, and there are quite objective risks that there will be a certain surge in inflation in the spring. Therefore, while a situation in which the Bank of Russia could reduce the interest rate has not formed, there is no particular intrigue with rates. I wonder what kind of rhetoric there will be, whether the Bank of Russia will continue to say that rates will be high for a long period of time, or will it soften this phrase, giving a signal that a reduction in interest rates may already be in the summer.
The Bank of Russia, in general, is trying with all its might to convince the market that it wants to achieve its inflation target this year. From my point of view, this is a rather difficult task, given the labor shortage, the strong increase in budget expenditures, and the increase in tariffs. Personally, I expect a rate of around 5.5-6%.”
Elvira Nabiullina herself said that space for reducing the key rate will appear in the second half of the year. The Ministry of Finance expects the figure to go down only in the fourth quarter. The Bank of Russia has repeatedly emphasized that the process will not be abrupt, as in 2015 or 2022, otherwise there is a risk of facing rising prices again.
The average rate that the regulator includes in the forecast for this year is 13%. But perhaps the figure will be lower, says Sofya Donets, an economist for Russia at Renaissance Capital: “The large decisive increase in rates began quite a long time ago. The level that has now been reached is a record high in real terms.
Previous such increases were observed only within the framework of, let’s say, shock therapy, for very short periods, for example, in the spring of 2022. Then a rapid and sharp decline followed. Now it will happen in any case, but most likely it will be more extended.
The current level of rates leaves room for the start of reduction even in the spring months, but the traditionally conservative Central Bank is more likely to postpone this until the middle of the year. In recent interviews, further tightening is not heard in the rhetoric, but the word “softening” appears.
Now the level of rates is perceived by the market as one that is difficult to tolerate for longer than three months. With such a tight monetary policy, there is no room for optimism. It’s hard to believe in the forecast of the Ministry of Economy with growth of 2.5% and even in the forecast of the Bank of Russia, which assumes growth of 1% this year. However, we are a little more optimistic than the consensus and do not rule out that by the end of the year we could see the rate below 10%.”
At the February meeting, the Central Bank will also test several innovations. For example, the progress of the rate discussion by the board of directors will be published. The positions of its members will be presented impersonally, and, as planned, this should help the market better understand the logic of decision-making. A similar practice is now used by the US Federal Reserve.
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