Russia seen hiking rates by 200 bps to 18% in July as inflation quickens: Reuters poll By Reuters

The Russian Central Bank is planning to increase its key interest rate by 200 basis points to 18% later in July, as it struggles to control stubbornly high inflation that is expected to surpass its 4% target, according to a Reuters poll conducted in late June and early July. The bank has adopted a more hawkish stance due to the continuous escalation of inflation. As of June 24, the economy ministry reported annual consumer inflation at 8.61%.

Ten out of 16 analysts and economists polled by Reuters anticipated a 200 basis point increase, with three predicting a rate of 17.5% and three suggesting a more moderate 100-basis-point hike. Mikhail Vasilyev, the chief analyst at Sovcombank, forecast a 200 basis point hike, stating that despite the current 16% key rate, inflation, lending, and domestic demand have not shown signs of slowing down.

The consensus forecast indicates that rates are expected to end the year at 17.75%, an increase from the previous poll’s 16%. The tight monetary policy is necessary due to the absence of clear indications of slowing inflation, according to BCS World of Investments analysts. Year-end inflation is predicted to be 6.4%, up from 5.6% in the previous poll and significantly higher than the central bank’s target and expectation. Inflation stood at 7.4% in 2023, a decrease from 11.9% in 2022.

Despite the anticipated monetary tightening, the poll showed that economists still expect Russia’s Gross Domestic Product (GDP) to grow by 3.1% this year, a slight increase compared to last month’s poll. Analysts also predict the rouble, currently trading at approximately 87 per dollar, to weaken to 97.5 over the next year.

The Reuters poll was conducted by Alexander Marrow in London and Elena Fabrichnaya in Moscow, and was edited by Sharon Singleton.

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