The Central Bank did not change the rate: the key indicator was left at 16%

For the first time in seven months since the beginning of the cycle of tightening monetary policy, that is, the consistent increase in the key rate, which began in July 2023, the Bank of Russia left this indicator unchanged. Apparently, the regulator believes the current level of the key rate of 16% is sufficient to further contain prices. MK found out from experts what the pause in tightening the monetary policy of the Bank of Russia will lead to, what will happen to the dollar exchange rate, the incomes of Russians and the economy.

Natalya Milchakova, leading analyst at Freedom Finance Global:

“The Board of Directors of the Central Bank of the Russian Federation left the key rate at the current level of 16% per annum due to the fact that the rate of weekly inflation has been slowing since the beginning of 2024. For economic growth in Russia, maintaining the current key rate is not the best option, since since December 2023, the growth of the manufacturing industry began to slow down. But reducing the key rate while maintaining the threat of rising inflation not only tomorrow, but also in the coming months, will be impossible.

For the wallets of Russians, the decision on the key rate will be neutral, since inflation reacts to changes in monetary policy with a certain time lag, and, as we see, the previous six months of key rate increases have not yet led to a slowdown in inflation. But for many Russians there is a chance to earn money on interest on deposits in reliable banks. But for borrowers, with the exception of those who take out loans under preferential programs, maintaining the key rate at the current level will be unfavorable – loans will not become cheaper.

The ruble often reacts to the decisions of the Central Bank in a paradoxical way. But we believe that what will be more important for the foreign exchange market is not the regulator’s decision on the key rate itself, but the tone of the accompanying comments and the press conference of the Chairman of the Central Bank of the Russian Federation, Elvira Nabiullina. The more hawkish the rhetoric is, the more chances the ruble will have to strengthen to 90 rubles per dollar and 97 rubles per euro. Otherwise, the Russian currency may fall to the area of ​​93 rubles per unit of American currency and reach 100 rubles per unit of European currency.”

Mikhail Vasiliev, chief analyst at Sovcombank:

“In recent months, inflation has begun to slow down, but is still at levels that significantly exceed the regulator’s target of 4%, which is why the Central Bank of the Russian Federation continued to maintain a high key rate at 16% until it is confident of a sustainable decline in inflation and inflation expectations.

The rate of price growth will continue to slow down in the coming months thanks to the stable ruble exchange rate and tight monetary conditions. The main factor behind increased price growth now remains strong domestic demand. It is fueled by a shortage of personnel in the labor market and wage growth, which outstrips labor productivity.

High inflation expectations of citizens and businesses also remain a significant pro-inflationary factor. True, among the population in January they decreased to 12.7% from 14.2% in December, but remain elevated.

The Central Bank’s decision will not have a significant impact on the ruble exchange rate. In the coming weeks, the dollar on the Moscow Exchange will trade in the range of 88-93 rubles, the euro in the range of 95-100 rubles, and the yuan will be given 12.2-12.9 rubles. Maintaining the key rate at a high level of 16% will continue to support the domestic currency in the coming months. Tight monetary policy slows down lending and reduces demand for imports as well as demand for currency. In addition, the current high rates on ruble deposits of 14-16% per annum support the attractiveness of savings in rubles.”

Kirill Kulakov, president of the self-regulatory organization “Regional Association of Appraisers”:

“The Bank of Russia left the key rate at 16% primarily because inflation decreased insignificantly – by 0.2%, which does not provide grounds for easing the regulator’s policy. Consumer activity, which the Central Bank sought to achieve by raising the rate, decreased somewhat, including due to changes in lending conditions, both preferential and consumer. But this trend appeared, in fact, only in the last two months; it takes time for it to become a stable trend. This and other market indicators indicate that a reduction in the key rate can be expected in the second quarter.”

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

“The reason for the key rate reaching a plateau is the slowdown in inflation growth, inflation expectations and devaluation experiences. The domestic currency is relatively stable at around 90 rubles per dollar.

Market participants “vote with rubles” for the option of maintaining the current cost of funding: currency purchases are limited, OFZs are stable and their yield is not growing, and security prices are the same as at a rate of 12%.

Against the backdrop of expectations that the rate will reach a peak, interest rates on deposits and loans in Russian banks are most likely already at their maximums, and will soon be lower.

Either at the last meeting of the first half of the year, or at the first in the second half of the year, the rate of the Central Bank of the Russian Federation may begin to decline. We are leaning more towards the first option, that is, early. The sooner the downward inflationary movement is confirmed, the sooner rates will go down, and this will be a relief for corporations and the private sector, which will find it easier to borrow money—the debt burden will decrease and business efficiency will increase.”