Russia (bbabo.net), - At the first monetary policy meeting of this year on February 11, the Bank of Russia will raise the key rate for the eighth time in a row, quite noticeably, analysts polled by Rossiyskaya Gazeta agree. The main reason is that there are no signs of a slowdown in inflation, which has already crept up to 9% in annual terms. The next steps of the Bank of Russia on the rate will depend on price dynamics and geopolitical alignments: it is possible that in the spring the key rate will become two-digit.
The Bank of Russia has been raising the key rate for almost a year. In March 2021, the Central Bank began raising the key rate from its record low of 4.25% per annum amid a noticeable acceleration in inflation. Now the key rate is 8.5%, to this level the Bank of Russia raised it in December (by one percentage point at once).
The December rate increase came against the background of annual inflation of 8.4%, a five-year high. A new rate increase at the meeting next Friday looks obvious: inflation has not only not slowed down (the Bank of Russia still predicts that it will slow down to 4-4.5% by the end of 2022), but also accelerated in January to 8.9%.
With such dynamics of consumer price growth, according to the forecast of most analysts, the Central Bank next Friday will once again decide on a wide step in raising the rate: it will again be raised immediately by one percentage point and will amount to 9.5% per annum.
An increase in the key rate to 9.5% is the base scenario for which the market is being laid, stresses Vladimir Evstifeev, head of the analytical department at Zenit Bank. In addition to price dynamics, persistent geopolitical uncertainty speaks in favor of a significant increase in the key rate: since the December meeting, the ruble has weakened by 2.5%, economists for Russia and the CIS at Renaissance Capital Sofya Donets and Andrey Melashchenko state. "But the main factor in sustained inflationary pressure is the increase in world prices for both raw materials and technological products, which account for about half of Russian imports and basically have no domestic competitors," analysts say.
"Current inflation expectations are as follows: for some time we will be on a high plateau of rates, which we have already reached, and in the second half of the year the growth rate will already be significantly lower - in annual terms in December closer to 5%," the director of the group of sovereign ratings and macroeconomic analysis of ACRA Dmitry Kulikov (he expects that on Friday the Central Bank will raise the rate only to 9%). According to him, the decline in annual inflation rates in the second half of the year will potentially pave the way for lower inflation expectations, and hence for easing monetary policy. But now, while there is no downward trend in inflation expectations, there is room for further tightening of policy, Kulikov adds.
In March, the key rate may reach 10%, and it will definitely start to decline no earlier than summer
According to Donets and Melashchenko, the rhetoric of the Bank of Russia will remain tough on Friday, the regulator will note its readiness to further tighten monetary policy in March. “Given the current inflation dynamics, we expect the Central Bank to raise its forecast for price growth by the end of 2022 by 1-1.5 percentage points, and postpone expectations of inflation returning to the 4% target by mid-2023,” experts say. According to their forecast, the Bank of Russia will note the increased geopolitical uncertainty and indicate the continued suspension of foreign currency purchases under the budget rule (the Central Bank has not been buying foreign currency for the Ministry of Finance since January 24 due to stock fluctuations, which then led to a series of depreciation of the ruble).
According to Donets and Melashchenko, the Bank of Russia will maintain a tight monetary policy throughout 2022. "After raising the rate to 9.5% in February, we expect the key rate to reach 10% in March, which will complete the current cycle of increase," they predict. The main uncertainty factor for this forecast is geopolitics, analysts add. But under any of the scenarios, the potential for a rate cut remains in 2023, by the end of which the key rate may drop to 6.5%, according to Donets and Melashchenko.
In the baseline scenario, the key rate of the Central Bank will not exceed 10% at the peak, agrees Olga Belenkaya, Head of the Macroeconomic Analysis Department of FG FINAM. According to her, the dynamics of the rate will depend on peak inflation, the speed of the subsequent decline in inflation and inflation expectations, the possible pro-inflationary impact of the depreciation of the ruble due to possible new tough sanctions or accelerated normalization of the monetary policy of world central banks. "Probably, the peak value of the key rate will be reached in the first quarter, and in the event of a steady slowdown in inflation, the Central Bank may move to a gradual reduction in the rate in the second half of the year," Belenkaya admits.
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