Russian Central Bank Expected to Raise Key Rate by Another 100 Bps, According to Reuters Poll

Russia’s central bank is anticipated to increase its benchmark interest rate by 100 basis points to 19% during its upcoming meeting on September 13. This decision aims to address inflation concerns and temper the overheating economy, according to a recent poll of analysts.

The survey, which involved 15 analysts conducted in late August and early September, found that the annual inflation rate is expected to end 2024 at 7%. This represents a decrease from the current rate of 9.1%, although it is slightly higher than the previous forecast of 6.9%. The central bank projects inflation will fall within the range of 6.5-7.0% in 2024 as supply catches up with demand.

In July, the central bank had already raised the benchmark interest rate by 200 basis points to 18%, the highest level since April 2022, and signaled that a strict monetary policy would be maintained for a while to ensure a sustainable decrease in inflation.

Analysts also predict that Russia’s double-digit benchmark interest rate will persist until 2027, at which point it is expected to drop to 9.0%. The central bank’s forecast for the average benchmark rate in 2027 is between 7.5% and 9.5%.

Furthermore, gross domestic product (GDP) growth is forecast at 3.6% for this year, slightly below the official updated forecast of 3.9% shared by Finance Minister Anton Siluanov, following positive data from the first half of the year. Capital investment growth, a key driver of the economic expansion, is estimated to be 7% in 2024, down from last year’s growth rate of 9.8%.

Additionally, the rouble is predicted to depreciate by over 5%, reaching approximately 96.0 against the U.S. dollar in the next year, compared to the current official exchange rate of 91.19. Analysts cite various negative factors for the rouble’s decline, including geopolitical risks, sanctions, capital outflows, the demand for foreign currency to repurchase shares of Russian companies from foreign owners, and increased government spending.