The rate begs to be raised – Kommersant FM

There are still ten days left before the Central Bank meeting on the key rate, but a consensus has already formed in the market. The indicator will be increased, Kommersant FM’s interlocutors are sure. Now the key rate is 15%, which experts have already called excessively harsh lending conditions. However, at the end of November, inflation exceeded 7.5%, this was the regulator’s forecast for the entire 2023. At the same time, government spending is expected to increase in December, which could cause the figure to increase further.

What will the Central Bank’s reaction be? Should we expect a sharp rise in the key rate? Raiffeisenbank chief economist Stanislav Murashov believes that in the current conditions the regulator must act carefully: “The Central Bank will make a decision based on the latest data. But for now they are talking about a strong probability of raising the key rate to, say, 16%. The Central Bank itself monitors this point: if inflation hasn’t gone down, we’ll increase the rate further.

If we look purely macroeconomically, a lot has already been done in a short period. I would wait, so as not to overwhelm consumer demand and economic activity with such high rates.

At the same time, I do not see any significant events that would lead to the need to immediately raise the rate by 200 basis points.

Life seems to be getting better. The rate increase will not affect the rate. As for inflation, again, time must pass; the Central Bank is talking about three to six quarters.”

At the same time, December budget expenditures are considered one of the threats to inflation: contracts that were concluded at the beginning of 2023 will have to be paid. Over the entire year, an additional 3 trillion rubles were supposed to be withdrawn from the National Welfare Fund for these purposes, but so far only 500 billion rubles have been spent. In addition, the statistics may be influenced by vegetables and fruits, which seasonally become more expensive in winter.

The Central Bank traditionally does not take this factor into account, but there are other reasons to raise the rate to 17%, according to Alfa Bank analysts. They are listed by Freedom Finance Global leading analyst Natalya Milchakova: “In November, inflation has already reached the level of the forecast for the year. This may already be a reason for the regulator to begin to fight it more harshly. It is also worth taking into account monthly sociological surveys of the population regarding inflation expectations.

I think that the rate will be increased by one and a half or even two percentage points.

Let me remind you that the Central Bank previously stated that inflation in Russia would peak only by the spring of 2024. This means there is reason to raise the rate in December. In general, it will not fit into the official forecast and will be higher. It is possible that its level may reach 8%.

The ruble exchange rate, in turn, often reacts very ambiguously. In theory, when interest rates rise, the national currency should strengthen. This relationship does not always work for us. Most likely, due to the fact that the foreign exchange market is guided not by the announced event, but by forecasts.”

Meanwhile, since the end of last week, the ruble has accelerated its fall. If on Thursday, November 30, the dollar was trading on the Moscow Exchange at 88 rubles, then on Monday, December 4, it exceeded the level of 91 rubles. Such indicators are observed for the first time since November 14.

This could also become a trigger for the Central Bank, explained Daniil Bolotskikh, leading analyst at Digital Broker: “It is clear that the regulator is targeting inflation. If, according to weekly data, it has already exceeded 7.5%, then, naturally, the Bank of Russia will most likely be forced to further raise the rate, especially in anticipation of the fact that we will face New Year’s spending, increased state budget expenses and a long break between Central Bank meetings.

Here you need to pay attention to whether the economy can afford it. We see that, judging by the data received for October, manufacturing activity turned out to be better than the consensus forecast. In addition, the PMI indicator is at the level of September, which suggests that after the regulator raised the key rate by two percentage points at once, the economy did not experience a sharp shock, which leaves freedom of action for the regulator at the upcoming meeting.

Meanwhile, corporate lending continues to grow despite the key rate increase. In October we had growth of 2.3% versus 2% in September. Therefore, for now, the Central Bank can raise the key rate further and see how the economy reacts to this.

The regulator is rather proactive, and now curbing inflation is very important for the economy. Therefore, the Bank of Russia will probably act with a reserve and raise the rate.”

The Central Bank noted that a further increase in rates is possible if there is no sustained slowdown in inflation. The head of the regulator, Elvira Nabiullina, considers it possible to reduce the figure only at the end of 2024. Nevertheless, judging by official forecasts, the Central Bank does not plan to bring inflation to 4% in 2024. This should happen only in 2025.

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Ivan Yakunin