What are the consequences of the regulator's decision for inflation, the ruble exchange rate, and interest rates on loans?
Despite the signals from the regulator about a possible increase in the key rate that appeared on the eve of the June meeting of the Board of Directors of the Central Bank of the Russian Federation, the Bank of Russia ultimately kept it at 16% for the fourth time in a row. The market has been living with this rate since mid-December. Meanwhile, annual inflation in the country accelerated to 8.17% in early June. However, the regulator believes that one half-year is not enough to slow down price growth, so it kept the indicator unchanged for another round. MK found out from experts how such a policy will affect the economy and the pockets of Russians.
“Judging by the fact that there was no change in the key rate, the Bank of Russia will continue to monitor the situation in the economy — monitor the growth rate of inflation, production, retail sales, lending, unemployment and personal income. If pro-inflationary risks prevail, the economy continues to actively expand, and the labor market is tough, then at the next meeting on July 26, the regulator may consider more radical measures to tighten monetary conditions — for example, raising the rate immediately by 2 percentage points, to 18%.
Given the imminent end of the large-scale preferential mortgage program (it will happen on July 1), we expect a cooling of consumer activity in the real estate sector. Thus, from July we can expect a slowdown in the growth rate of mortgage lending and, as a result, generally downward pressure on inflation.”
“When setting policies regarding rates on deposits and loans, banks are guided largely by their forecasts for the key rate, which are based on signals from the Central Bank of the Russian Federation. After maintaining the key rate at 16%, interest on deposits and loans may increase in Russian banks slightly less than if the regulator increased the rate. However, he gave strong signals regarding a possible increase in the figure at the July meeting, so we can expect that on average bank rates will rise by 0.5%.
Maintaining the key rate at 16% will slow down demand and inflation. We expect annual inflation to peak this July at 8.6% (following a nearly 10% hike in utility rates on July 1) and slow to 6.5% by the end of this year. We expect inflation to return to the target 4% only by the end of 2025.
Long-term preservation of tight monetary conditions (that is, a high key rate) will support the ruble. We believe that in June the ruble exchange rate will remain stable and continue to trade in the established ranges of 87-92 rubles per dollar, 94-100 rubles per euro and 12-12.7 rubles per yuan. In general, the national currency has remained stable for seven months now and is trading in the range of 87-94 rubles per dollar, and nothing will change in the coming months.”
“A noticeable contribution to economic growth is made in one way or another by government demand, which the Central Bank of the Russian Federation is unable to influence with rates. For the population, the main negative is the high rate — this is a deterioration in housing affordability due to “unaffordable” housing conditions. market mortgage rates. A sharp deterioration in conditions occurs even with double-digit rates on market mortgages, so there will not be much difference in the key rate at 16%.
What is important now is not so much the size of the rate as the comments of the Central Bank and their impact on the expectations of market participants. Pro-inflationary risks are supported by factors such as the summer indexation of housing and communal services tariffs, the loss of part of the crop due to frost, as well as a possible reduction in imports due to difficulties in external payments. In addition, the rhetoric of representatives of the Central Bank of the Russian Federation has recently become noticeably tougher. Actual monetary conditions in the market continue to tighten, reflecting the corresponding expectations of participants. However, it would be logical to raise the rate at the key meeting at the end of July — along with changes in the macro forecast. The Central Bank of the Russian Federation kept the rate at 16%, but at the same time tightened its rhetoric and gave the market signals that expectations for the start of easing interest rate policy could completely shift to 2025.