Central Bank keeps key rate at 16%
At a meeting on 22 March, the Russian Central Bank decided not to change the key rate keeping it at 16%. This step was expected and predicted.
Experts surveyed by Realnoe Vremya agreed that at the moment there weren’t any obvious signals to soften the regulator’s policy.
Vice Director of the Retail Business Development Department of Svoy Bank (IDF Eurasia Group) Vadim Shamin commented on the meeting of the Central Bank and noted that it traditionally followed the latest data on inflation, the loan size and its amount, inflation expectations of the population and businesses.
“Inflation expectations have somewhat reduced in March compared to the February figures but still remains two-digit. The regulator repeatedly claimed that a steady reduction in both inflation expectations and other indicators including the real price rise were needed to lower the rate. According to the latest data of the Russian Statistics Service, inflation remains high. It isn’t rushing to go down in annual terms because of the base effect and is now at 7,58 (-0.06%). In February, inflation rate accelerated to 7,7% (+0,3%). Amid this backdrop, a consensus outlook of market analysts by late 2024 is 5,2% (+0,3%). It is also expected that the peak of annual inflation amid a low base in 2023 will be reached in the second quarter of 2024 (probably, at around 8%). After that, it will start declining in the third quarter,” the analyst said.
He singled out high consumer demand backed by rising salaries and enterprises’ high costs among the factors that keep affecting inflation.
“The high rates continue putting pressure on the lending market, and the producer is compensating for the costs by raising product prices,” Shamin explained.
Stable ruble
At the same time, experts think that the unchanged key rate is not going to influence the ruble rate.
“The situation with the account of current transactions continues being the key factor influencing the rate. The figures started to improve in February. According to some assessments in February, current transactions totalled $5,2 billion — this is 15,5% above the January level. Current transactions improved, firstly, because of trade balance, since the balance of services and the balance of primary and secondary incomes remained negative. The trade balance surplus was $9,1%, and all this happened due to growing expert that rose by 10,4% and amounted to $31,9bn in February. This is positive news to the ruble. At the same time, one should keep in mind that Russia is limiting oil exports within a voluntary OPEC+ deal from the next month,” Finam analyst Nikolay Dudchenko explained.
Shamin, in turn, assumes that there are no prerequisites for a falling rate.
“The high interest rate that seems to comprise of two digits throughout the year is supporting the national currency: the demand for deposits in rubles with high profit is increasing, the population’s interest in assets in rubles is growing in general. The next tax period and additional quarterly payouts will also support the ruble in late March. The decree on the sale of the currency by exporters remains valid. The most probably outlook among the high rates and administrative measures is that the ruble will be more stable than in 2023 and if there is some weakening in mid-term, it will be insignificant,” the analyst believes.