How Friday's decision of the regulator will affect the exchange rate of the national currency
It has been a long time since there was such a high level of intrigue around the scheduled meeting of the Board of Directors of the Central Bank as now. Will the regulator increase the key rate, and if so, by how much? Or will it remain at the same level of 12% per annum? Analysts were clearly divided into two camps in their expectations. Many were confused by recent statements by German Gref and Andrei Kostin: both leading state bankers doubted that the Central Bank would continue its course of tightening monetary policy.
There are more than enough serious arguments in favor of both positions. For example, Gref points to an absolutely reasonable circumstance: since the previous decision on the rate, made by the Central Bank on August 15, too little time has passed to assess the consequences of this step. Indeed, the full impact of a rate change usually takes several quarters to affect the economy. And here – some month! And from the point of view of the prospects for economic growth, the interests of private business, investors, enterprises (for which the cost of borrowed funds is still prohibitive), there is nothing good.
At the same time, it is no coincidence that the head of the regulator, Elvira Nabiullina, did not rule out an increase in rates on Friday, September 15, on September 1. Needless to say, the rhetoric “I don’t rule out an increase” is convenient for the Central Bank, since it leaves it some room for maneuver. However, markets see this as a very clear, unambiguous signal based on current realities. These objective factors themselves are pushing the Central Bank to take radical measures. Let's say, the consumer price index in August rose to 5.2%, inflation expectations – to 11.5% after 11.1% in July, inflation in the period from August 29 to September 4 accelerated to 0.11%, after 0.03 % a week earlier. Loans to individuals are growing at a record pace: according to data for July, debt over the past 12 months in Russia as a whole has increased by 4.7 trillion rubles.
“The expert community finds itself in a delicate position: many are somehow embarrassed to express an opinion different from the forecasts of Gref and Kostin,” says financial analyst Sergei Drozdov. – On the other hand, Nabiullina herself allowed the rate to increase. I think, in order not to disorient the market, the rate will be increased to 13% per annum, adding 100 basis points. Since we said “A”, we must say “B”. At the same time, the situation now is ambiguous for the financial authorities: the economy is clearly overheated (inflation is growing, the population spends a lot and gets into debt, the money supply is growing, the national currency is depreciating), and it needs to be cooled, but there is zero real benefit from this.
As for the ruble exchange rate, it will most likely stabilize at the end of September or October, consolidating within the range of 92-98. “But I would like to see it in the range of 85-90 – although there are no significant drivers for strengthening today,” says Drozdov.
BitRiver financial analyst Vladislav Antonov expects the Central Bank to raise the rate by 50-100 basis points, to 12.5-13%. This will be a signal to the market about the regulator’s intention to continue a tight monetary policy to curb inflation against the backdrop of a weak ruble. At the same time, the measure will have a very slight effect on the exchange rate of the Russian currency: it is influenced to a greater extent by external factors – the state of the balance of trade and payments, the lack of foreign exchange liquidity. For the population, an increase in interest rates means a further increase in the cost of loans and the availability of mortgages. Deposits will become somewhat more profitable. And for businesses, the risks of curtailing investments will increase.
“The regulator will keep the key rate at the same level of 12%,” Alexey Vedev, director of the Center for Structural Research at RANEPA, enters into the dispute. – And he will do this for three reasons. First, unlike the fiscal policy of foreign exchange regulation (which more quickly affects the structure of supply and demand), the rate increase has a deferred expiration date. The consequences of the Central Bank's decision of August 15 have not yet been sufficiently manifested. Secondly, the main issue in the budget process right now is GDP growth in the fourth quarter and next year. The state does not need economic activity to suffer. Thirdly, the dynamics of the ruble exchange rate will not undergo noticeable changes.”