Will the Central Bank raise the key rate?
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The Board of Directors of the Central Bank will meet on February 16 for the first meeting in 2024. Kommersant FM’s interlocutors are confident that for the first time in six months the Central Bank will take a pause and will not raise the key rate. Previously, the figure was revised five times in a row – from 7.5% to 16%. In one of the latest reports, the regulator wrote that a so-called disinflationary trend has emerged in Russia, but it cannot yet be considered sustainable. Nevertheless, the population’s inflation expectations fell below 12%, although they were at 14% in December.
Should we expect intrigue from this meeting? Bloomberg Economics Russia economist Alexander Isakov believes there is: “It seems to me that the Central Bank will look at three sets of numbers. The first of these concerns inflation expectations. The picture here is ambiguous. On the one hand, they have decreased. This means that the consumer is less afraid of the degradation of the value of savings and is more willing to save them in ruble assets. On the other hand, inflation has accelerated. In January, the price level increased by 0.86% – the seasonal norm over the past 10 years. But this is a bit high.
The second set of numbers is business activity. Everything is fine with her, unemployment remains extremely low. Retail turnover growth is 10% in real terms. That is, the economy is in a heated state. And finally, the first lending figures are coming in. They are still preliminary, but we see that this market is cooling, real estate prices have begun to fall in some places, and pressure from credit growth will probably subside.
Therefore, the regulator will keep the rate, but confirm its readiness to keep it at 16% until it sees more convincing evidence that inflation is slowing.
Is there at least some intrigue in terms of rhetoric? The main part of the chairman’s message that I am waiting for will concern the labor market. Here are the biggest questions. In many segments, productivity growth has diverged greatly from real wage growth. The second question concerns the Bank of Russia’s revision of the inflation forecast. Now the regulator expects inflation in 2024 to be 4-4.5%. It seems to me that the current figures are inconsistent with this forecast.”
At the meeting, the regulator may revise the macro forecast not only for inflation: estimates of GDP, lending rates and the average key rate may change. Now the Central Bank promises that the rate will be in the range from 12.5% to 14.5%. The head of the regulator, Elvira Nabiullina, said that she sees room for easing policy only in the second half of the year. The Ministry of Finance expects a reduction no earlier than the fourth quarter. So far, however, there are no reasons for this, says Sovcombank chief analyst Mikhail Vasiliev:
“The head of the Central Bank said that until we see a steady trend towards a slowdown in price growth and a reduction in inflation expectations, the key rate will remain high for as long as necessary. It will probably remain at 16% in the first half of the year, and if inflation continues to slow down, then from the third quarter, from July, the key rate will begin to decline. By the end of the year we expect up to 12%.
Our base year-end inflation forecast is 6%. The pro-inflationary factors are still quite serious. Unemployment is at a historic low of around 3%. Because of this, wages are growing at a rate faster than labor productivity.
Plus, a soft budget policy is taking shape in 2024; the ruble has recently been slightly weaker than at the beginning of the year. And although inflation expectations are declining, they are still at an elevated level.”
An important reason for this remains the exchange rate of the ruble. On February 15, the dollar on the Moscow Exchange rose above 92 rubles, the euro exceeded the mark of 99 rubles. BCS believes that the decision on the key rate may increase volatility in the foreign exchange market.
The official forecast of the authorities is the dollar exchange rate of about 90 rubles. throughout the year. Alfa Bank’s updated estimate is more pessimistic: in the base scenario, economists expect 100 rubles. per dollar by the end of the year. And Ingosstrakh-Investments allows for an increase of up to 110 rubles if oil fluctuates around $80 per barrel.
Everything is clear with us – Telegram channel “Kommersant FM”.
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