“The market understands that we are starting to live in completely new conditions” – Kommersant FM

The Bank of Russia raised the key rate by 2 percentage points at once, the figure reached 15%. This is the fourth increase in a row since July 2023. Thus, the Central Bank is trying to regulate the effect of accelerating inflation, high rates of lending growth and fears of the impact of budget expenditures on the rate of price growth. Kommersant FM presenter Alexey Naryshkin discussed this regulator’s decision with economic observer Konstantin Maksimov.

– Is this still a surprise? Because most economists said that the figure would be a little more modest.

– In a certain sense, yes. Some people think this is a shock decision. But it is clear that no one could have predicted a clear conclusion and solution. I’m looking at a press release in which the regulator actually explains this step to you and me in plain text.

Current inflation pressure has increased significantly, it is higher than the expectations of the Bank of Russia, the steady increase in domestic demand increasingly exceeds the possibilities for expanding the production of goods and services, inflation expectations remain at elevated levels, and lending growth rates remain high. Based on the new medium-term fiscal policy parameters, the decline in fiscal stimulus in the coming years will occur more slowly than expected.

Accordingly, in these conditions, it is necessary to ensure additional tightening of monetary policy to limit the scale of inflation deviation upward from the target and return it to 4% in 2024. Therefore, the Central Bank makes this decision.

As for further steps, there are no changes in rhetoric. They will be taken taking into account the actual and expected dynamics of inflation and in relation to goals, as well as economic development.

According to the updated forecast of the Central Bank, at the end of 2023 the annual inflation range is 7-7.5%, in 2024 it will drop to 4% and will remain close to this border in the future.

Let’s look at the reaction. It is clear that the foreign exchange market has tread water a little, and we went to the levels of 92.92, that is, we immediately pass 93. The stock market also has a completely predictable reaction. Of course, I won’t call this a collapse of the Moscow Exchange index, but the drop is significant, minus 0.35%.

— In what future will the effect of raising the key rate be felt?

— How banks will now evaluate their interest rates and act in the future, we will probably leave this for commentary by their representatives. At the same time, those securities that are tied to the cost of lending have a high threshold and high debt servicing costs. For them, of course, very difficult times are coming, they will have to bear the burden of 15%, and it is not entirely clear how this will still affect our developers.

Because, on the one hand, there is a preferential rate, on the other, the market understands that we are starting to live in completely new conditions.

— How long will the effect of this increase last?

— This is probably the most important question. Because in the press release published on the Central Bank website, there is a clear signal that we are doing this because of growing inflationary pressure. But whether it is a pause or not, I think this will be one of the first questions.

That is, we have reached a certain ceiling, and will there be a further pause in order to look at the complex effect of both the increased rate and the strengthened ruble? Or, based on current conditions, will we again talk about accelerating inflation and the need for a further rate increase?

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