© Reuters. The Russian state flag waves over the Central Bank headquarters in Moscow, Russia, on August 15, 2023. The building signage reads: “Bank of Russia”. REUTERS/Shamil Zhumatov/File Photo
By Alexander Marrow and Elena Fabrichnaya
The latest Reuters poll indicates that Russia is expected to keep interest rates at 16% on Friday, following a series of rate hikes totaling 850 basis points in five meetings since July. Economists are conflicted about the signal that the central bank will send to the market.
Several factors, including labor shortages, currency depreciation, robust credit expansion, and increased government expenditure, have all contributed to persistent inflationary pressures in 2023. Annual inflation rose to 7.4% this year, following an 11.9% figure in 2022.
However, there are now indications that Russia’s consumer price growth is beginning to stabilize. The central bank’s target inflation rate stands at 4%.
All 23 analysts and economists surveyed by Reuters anticipate that the Bank of Russia will maintain its key rate at 16% during the upcoming meeting. While some experts suggest that a rate cut could be on the horizon, others remain skeptical.
Igor Rapokhin, an FX and money market strategist at SberCIB Investment Research, stated, “It is premature to discuss a sustainable slowdown in inflation, as the moderation in price growth in December-January was primarily due to transient and temporary factors.” On the other hand, Sovcombank’s chief analyst, Mikhail Vasilyev, believes that the central bank will continue to signal a potential decrease in the key rate later in the year.
In late January, Central Bank Governor Elvira Nabiullina hinted at a possible rate reduction, indicating that there is scope to lower the key rate, likely in the second half of the year. Despite being out of the public eye for several weeks, Nabiullina made her first televised appearance on Monday after canceling a scheduled appearance a month earlier.
Russia’s economy faces challenges such as inflation and high interest rates as President Vladimir Putin gears up for a March presidential election. However, Moscow’s ability to bypass Western oil restrictions has contributed to a resurgence in economic growth, alleviating some of the pressure.
In a swift response to Russia deploying troops to Ukraine in late February 2022, the country raised its benchmark rate to 20% in an emergency measure. Subsequently, the rate was gradually reduced to 7.5% before the central bank commenced a new round of hikes in July 2023.