The Bank of Russia left the key rate at 16%

Board of Directors of the Central Bank for the second time in a row kept the key rate at the same level – 16%. Apparently, the regulator was guided by the fact that inflation in recent weeks has remained at a more or less constant level, fluctuating only by hundredths of a percent. And inflation expectations of enterprises and households in March decreased from 11.9% to 11.5%. Maintaining the rate is a kind of signal from the regulator about stability in the financial market. Experts told MK how the decision of the Bank of Russia will affect the ruble exchange rate and the financial interests of Russians.

Igor Safonov, expert at the Development Center Institute of the National Research University Higher School of Economics:

“The Central Bank’s decision to maintain the key interest rate at the current level was absolutely predictable and expected. We believe that we can expect the first step down in the key rate level no earlier than June of this year. The decision of the Bank of Russia in the context of the soft budget policy of the Ministry of Finance is not restrictive for the business and investment activity of enterprises (which is confirmed by the stable dynamics of corporate lending even in the conditions of a significant increase in rates), but it stimulates saving sentiment among citizens, redistributing their demand for goods and services for future periods . Temporary cooling will enable production to adapt to consumer demands and help reduce inflation to target levels, which will have a beneficial effect on economic growth rates.

In our opinion, the main result of today’s decision by the regulator for the ordinary Russian should be his confidence that the Bank of Russia will ensure that inflation returns to the target of 4% in the next 9-12 months. Although now this requires a fairly high level of the key rate, in the indicated future this indicator will decrease as the rate of price growth slows down, and the availability of loans will improve. At the same time, the conditions for deposits, on the contrary, are unlikely to be more favorable than at the moment.”

Mikhail Zeltser, stock market expert at BCS World of Investments:

“Inflation, albeit slowly, is slowing down, and the ruble is relatively stable and its volatility has decreased. Against this background, the Central Bank refrained from making drastic steps, kept the rate and decided to see how the previously taken measures affected the markets and the economy.

The high rate is intended to cool the overheated lending market. Expensive loans will remain, and bank deposits will remain highly profitable for now. But at the beginning of the second half of the year, the Central Bank may still decide to ease, and loan and deposit rates will gradually go down. It will become easier for corporations and the private sector to lend and refinance.

Tight monetary policy of the Central Bank is a priori for the ruble. Maintaining the rate means squeezing demand for foreign currency for imports and a relatively stable ruble. As a result, the dollar may remain in the corridor of 93.5-87.5 rubles in the coming months.”

Sergey Solovykh, head of the department for working with wealthy clients at Fontvielle Investment Company:

“Monetary policy (MP) is cyclical. The Central Bank went through a tightening cycle from July to December 2023 (the key rate then increased from 7.5% to 16% per annum), which was caused by accelerated price growth, increased credit risks and devaluation of the ruble due to the structure of the foreign trade balance. Now the regulator is in a cycle of maintaining interest rates in order to stabilize the situation in the economy.

The policy of the Bank of Russia is quite predictable; representatives of the regulator assume that the cycle of easing monetary policy will begin only in the second half of the year, not earlier. Markets are guided by this rhetoric.

I would also draw attention to the fact that the latest OFZ issues from the Ministry of Finance, which come with a constant coupon rate, are coming out with an ever-increasing yield. Over the past few weeks since the end of February, the proposed yield has increased from 12.55% to 13.15% per annum, that is, to a 9-year high. The ministry’s willingness to borrow at record levels is evidence that the department does not expect the key rate to be cut in the near future. Now there is an excellent opportunity for conservative investors to purchase bonds for their portfolio, the guarantor of payments for which is the Russian government, and secure such double-digit returns for the long term.

In the future, much will depend on the rhetoric of the regulator’s representatives. If any clear signals appear regarding the transition to the monetary policy easing cycle, then both the stock market and banks will begin to react to this in terms of their financial products. This will specifically affect the profitability of new bond issues, as well as the terms and profitability of deposits, which will begin to decrease.”

Daniil Bolotskikh, leading analyst at Digital Broker:

“The ruble exchange rate, in our opinion, is now more influenced by foreign trade than by the level of the key rate. The Bank of Russia recently estimated the current account at $5.2 billion, which indicates that there are no drivers for a significant weakening of the national currency in the near future. The decision on the key rate will have a short-term effect on the ruble exchange rate. We expect that by the end of March the domestic currency will trade in the range of 90-93.5 rubles per US dollar, 98.5-102.15 rubles per euro and 12.5-13 rubles per yuan.

If we are talking about the impact of the Bank of Russia’s decision on rates on deposits and loans in Russian banks, then the banks’ policies will depend on the regulator’s rhetoric. In the event of even harsher rhetoric regarding the trajectory of the key rate this year, banks may continue the trend of the beginning of this year, when in January the weighted average rates on loans to non-financial organizations up to 1 year increased by 0.72%, to 16.83%, and from for a period of more than a year – by 0.25%, up to 14.34%.

A significant increase in rates also affects loans to individuals. In January, average weighted rates on loans up to 1 year increased by almost 2%, to 23.01%, and with a term of more than a year by 3.88%, to 17.5%.

Meanwhile, deposit rates have not yet fully reflected the regulator’s harsh rhetoric. The weighted average rates on deposits of Russians with a maturity of up to a year increased the most: by 1.5%, to 14.32%. Therefore, in the coming months we do not rule out catching-up dynamics in other types of deposits, but, in our opinion, it will be more smoothed out.”