The Russian Central Bank is planning to increase its key interest rate by 200 basis points to 18% at its July 26 board meeting, according to a Reuters poll. This move is aimed at controlling inflation, which currently stands at 9.2%, significantly higher than the regulator’s target of 4%. The factors contributing to inflation include massive state spending, wage growth across all sectors, labor shortages, and increased corporate and retail lending.
All 28 analysts surveyed agree that a rate hike is inevitable, with three-quarters predicting a more aggressive 200 basis points increase. Only four analysts foresee a 100 basis points rise. Oleg Kuzmin from Renaissance stated, “There are no alternatives to the rate hike at the July 26 meeting.”
In the previous Reuters poll on July 2, ten out of sixteen analysts predicted a 200 basis points hike. Some analysts have since revised their forecasts based on the latest inflation data. Sofya Donets from T-Bank, for example, has raised her forecast to 18%.
The central bank argues that a tight monetary policy will help bring down inflation to the target 4%. However, the bank’s critics, including industry lobbyists and bankers, accuse it of hindering economic growth at a time when the economy, driven by defense sector spending, could grow at faster rates than the current 5%.
In the lead-up to the July 26 meeting, the regulator’s rhetoric has become more assertive, with Governor Elvira Nabiullina indicating that the board will focus on the size of the rate increase rather than its necessity. The central bank has also stated that a tight monetary policy will be needed for a longer period than previously anticipated to sustainably contain inflation. The regulator is also expected to revise its inflation forecast for this year, currently at 4.3-4.8%. Some analysts predict that inflation will peak at over 9% now and slow down to 7% by the end of the year.
