The Bank of Russia continues its hawkish policy to stabilize inflation and depreciate the ruble
The Board of Directors of the Bank of Russia decided to increase the key rate from 12% to 13%. This is the third increase in the figure after an increase of 1.5% in July and another 3.5% at an extraordinary meeting in August. Today's decision by the regulator did not come as a surprise to the market, since the Central Bank has repeatedly warned about such a scenario if inflation indicators are unsatisfactory.
The ruble, which has weakened over the summer, continues to have a negative impact on price growth. MK found out from experts what its course will be after the regulator’s decision and what other aspects of Russians’ lives will be affected by the increase in the key rate.
“The ruble exchange rate may strengthen slightly after the rate increase, as this will make ruble assets more attractive to investors. Considering the recent sharp fluctuations of the ruble after a significant increase in the key rate to 12% in August, as well as the lack of introduction of additional measures to stabilize the domestic currency, the impact of the Bank of Russia’s decision on the ruble will be moderate, since it is also influenced by external factors.
< p>For the population, an increase in interest rates means a further increase in the cost of loans and a decrease in the availability of mortgages. Deposits will become slightly more profitable. In general, raising the rate will have a negative impact on consumption and the welfare of the population. For businesses, tightening monetary policy also carries risks of curtailing investment and consumption. However, this is a necessary measure to curb inflation.”
“The head of the Bank of Russia, Elvira Nabiullina, said the day before that the Central Bank of the Russian Federation does not exclude the advisability of raising the rate, and the regulator will look at the data that will be released before mid-September. The main pro-inflationary factors were the weakening of the ruble exchange rate, high lending rates, budget impulse and rising inflation expectations.
In addition, the trend towards a weakening ruble exchange rate continues, the dollar is near the 95 ruble mark and tends to 100 rubles and above. Many importers and businessmen began to include in their plans the dollar exchange rate at the level of 100 rubles and above, which will be reflected in higher prices in the coming months. So it is not surprising that the Central Bank of the Russian Federation eventually increased the rate.
The pace of lending in August remained extremely high. According to Frank RG, banks issued a record volume of retail loans in August – 1.81 trillion rubles, which is 18% more than July issues and 66% more than issues in August last year.
As a result, weekly inflation has remained above the seasonal norm for the 11th week in a row. Annual inflation by September 4 exceeded 5.3%. We expect prices to accelerate further in the coming months. We believe that in October annual inflation will exceed 6%. At the end of the year it will be 7.2%.
Following an increase in the key rate, rates on deposits and loans will rise by a comparable amount. It is also likely that yields on the OFZ market will continue to rise, followed by mortgage rates. An increase in the key rate will lead to an increase in the cost of loans, which will reduce consumer and investment demand, including for imports, and will also reduce the demand for currency.”
“The Central Bank of the Russian Federation was forced to raise the key rate in August to 12% and, as Russian President Vladimir Putin described the actions of the regulator at the Eastern Economic Forum (EEF), he did it in a timely and correct manner, because this is a factor in reducing inflation risks. To continue the fight against them and in view of the weakening ruble, this time it was also decided to increase the indicator. Let me remind you that the President of Russia also indicated that there are no insurmountable problems or difficulties with the ruble exchange rate, no one will make any sudden movements in resolving issues with the domestic currency.
Russia has already earned twice as much as it was frozen gold and foreign exchange reserves. At the same time, the domestic budget returned to a surplus, including because oil and gas revenues reached good levels due to the restoration of logistics and exceeded 2022 figures. This is understandable: the dollar exchange rate is very high at the moment, and this allows you to receive more money into the budget. But inflation risks remain, and against this background, the Central Bank of the Russian Federation raised the rate to reduce the exchange rate of the dollar and euro against the ruble.”
