The Central Bank put the bet on pause – Economics – Kommersant

The Bank of Russia, after six rounds of cuts, kept its key rate at 7.5% per annum. Such a decision was expected by most analysts, since the regulator had to react to several multidirectional factors at once. Annual inflation is slowing down, but inflation expectations are rising. Business sentiment and credit activity grew in the third quarter, but have recently begun to deteriorate. The novelty of the October statement of the Central Bank was an assessment of the impact of partial mobilization on the economy – in the coming months it will contain consumer demand and inflation, but then its effects “will be pro-inflationary due to increased restrictions on the supply side.”

Board of Directors of the Bank of Russia on the results of the Friday October meeting decided to keep key rate at 7.5% per annum. The decision is explained by a combination of reasons. On the one hand, the current growth rates of consumer prices generally remain low, and annual inflation is slowing down. In September, annual inflation dropped to 13.7% (after 14.3% in August) and stood at 12.9% as of October 21. On the other hand, household and business inflation expectations are at an elevated level and have grown somewhat compared to the summer months.

“Inflationary expectations of professional analysts for the medium term are anchored near 4%,” the regulator points out.

At the same time, the Central Bank believes that partial mobilization will restrain consumer demand and inflation “on the horizon of the coming months.”

However, in the future, its effects will be pro-inflationary due to increased restrictions on the supply side. In the baseline scenario, the Bank of Russia predicts that by the end of 2022, annual inflation will be 12–13%. Further, it will decrease to 5-7% in 2023 and return to the target level of 4% in 2024.

The Central Bank in its statement noted the impact of increased geopolitical tensions on monetary conditions. OFZ yields increased, the decline in lending rates stopped, and non-price conditions for bank lending tightened. At the same time, banks raised deposit rates in response to the flow of household funds from bank deposits into cash rubles. At the same time, lending growth remained generally high. Lending was supported by both the reduction in the key rate that took place since the spring, and government programs of concessional lending. In October, however, there were some signs of a slowdown in lending activity.

The dynamics of business activity in the third quarter was better than the expectations of the Central Bank.

“An ever wider range of enterprises is adapting to work in the conditions of external trade and financial restrictions,” the regulator noted. “This is facilitated by the gradual diversification of suppliers of finished products, raw materials and components, import substitution processes, as well as entering new sales markets, including reorientation to consumers within countries”.

At the same time, according to survey data, a significant proportion of enterprises are still experiencing difficulties in production and logistics. There are also growing restrictions on the labor market, including as a result of partial mobilization. So separately in September, business and consumer sentiment deteriorated somewhat due to the growth of general uncertainty. In the baseline scenario, the Bank of Russia forecasts a 3.0–3.5% decline in GDP in 2022. In 2023, the decline will continue and will range from -1% to -4%. The Russian economy will move to growth in the second half of 2023, the Central Bank expects.

The regulator left the signal to the markets about its future actions the same – uncertain, saying that “it will make further decisions on the key rate, taking into account the actual and expected inflation dynamics relative to the target, the process of structural adjustment of the economy, as well as assessing the risks from internal and external conditions and the reactions of the financial markets to them. The next key rate meeting will take place on December 16.

Vadim Visloguzov