Bet without regard to the ruble – Kommersant FM
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The Central Bank is preparing for a fateful decision on the key rate. VTB compared the regulator’s meeting on October 27 in importance to the Battle of Waterloo. It will largely determine the development of the financial and banking markets, said Dmitry Pyanov, deputy chairman of the board of the credit organization. At the beginning of the week, the majority of economists interviewed by Kommersant FM expected that on Friday the Central Bank would again sharply increase the key rate to 14% or even 15%. At the same time, the head of the Duma Committee on the Financial Market, Anatoly Aksakov, did not rule out that the regulator will leave the indicator unchanged, because the ruble has already been strengthening for two weeks.
Given the rise in prices in recent days, this is an unlikely scenario, says Andrey Kochetkov, leading analyst at Otkritie Investments: “Representatives of the Central Bank have repeatedly emphasized that the ruble exchange rate is not their main mandate. The main goal is inflation. If we look at the latest data, in the previous week it accelerated to 0.24%, the annual rate has already approached 6.6%.
Let me remind you that the boundary of the Central Bank’s new forecast corridor is 6-7% at the end of the year. If the pace continues, and most likely it will, because in the fall we are seeing the traditional increase in food prices, in particular for vegetables. The pre-New Year surge also has an impact, and as a result, inflation may exceed 7%, or even approach 8%.
Under these conditions, the Central Bank will tell us that demand exceeds output capacity and further tightening of monetary policy is required. Therefore, for now I see no reason for the regulator to hold the rate or even reduce it, looking at the ruble. Moreover, the current exchange rate of the national currency is not yet strong enough to stop there. The President said that we need an exchange rate of about 90 rubles. for a dollar. Accordingly, we expect a rate increase of at least 50, or even 100 basis points.”
The ruble reached its historical low on October 9, trading closed above 102 rubles. for a dollar. After this, Vladimir Putin issued a decree according to which exporters must return to the country and sell on the stock exchange a significant part of their foreign earnings. As a result, over the past two weeks the Russian currency has strengthened noticeably, and is now trading at about 94 rubles. for a dollar.
There will still be no drastic impact on the exchange rate from the rate increase, says Georgy Vashchenko, deputy director of the analytical department at Freedom Finance Global. A strong increase in the indicator could harm the economy, so the regulator will not dare to do this, he believes:
“The regulator on the table has two main options. The first is to leave the bet unchanged. In the current conditions, it has virtually no effect on the ruble, since the reason for its weakening is not that the profitability of instruments on the local market does not suit players. The second is to increase the indicator. By doing this, the Central Bank influences demand, including imports. That is, it seeks to equalize the balance by reducing the volume of currency purchases by importers following a decrease in its sales by exporters. This does not have an immediate effect, and the increase in rates must be significant to reduce imports.
On the other hand, high rates in conditions of still low inflation disincentivize investment in production, it becomes unprofitable to hire people, it is expensive to take out loans for equipment, while money can simply be deposited or bought bonds. An ultra-tight monetary policy is stifling economic growth; in my opinion, this cannot be done now.
The resource for a safe increase in the key rate does not exceed 2-3 percentage points. Then the economy will begin to slow down. The problem of the weakening of the ruble has already been solved by obliging exporters to repatriate and sell currency on the stock exchange. I do not expect the Bank of Russia to raise the rate above 14% per annum, but it will maintain hawkish rhetoric. If prices stop rising, then with a high degree of probability we will see an easing of monetary policy already at the beginning of the first quarter.”
The Central Bank has raised its key rate at the last three meetings. The head of the regulator, Elvira Nabiullina, said that the current growth cycle of this indicator will differ from the crises of 2014 and 2022, and the Bank of Russia will “keep rates at high levels for quite a long time.”
Earlier, economists surveyed by the Central Bank raised their forecast for Russian economic growth this year to 2.5%. Before this, they expected a 2.2% increase in GDP.
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