Russian Central Bank Expected to Maintain Benchmark Interest Rate at 18%, According to Reuters Poll

By Elena Fabrichnaya

MOSCOW (Reuters) – The Central Bank of Russia is expected to maintain its benchmark interest rate at 18% during its upcoming board meeting on Friday, as indicated by a majority of the 27 analysts surveyed by Reuters. This outlook comes amid early indications of a cooling economy.

Out of the analysts, fifteen anticipate no change in the rate, while seven expect it to rise to 19%. Four analysts predict a more aggressive increase of 200 basis points to 20%, and one analyst forecasts a 150 basis points hike to 19.5%.

Natalia Orlova, Chief Economist at Alfa Bank, commented, "Data released in August, including GDP growth for July and inflation expectations, do not provide a clear signal. The recent deflation also strongly supports the decision to keep the interest rate at 18%."

Expectations among analysts have shifted since the last survey conducted in late August and early September, which had forecasted a 100 basis points increase to 19% in the September 13 meeting.

The central bank raised the benchmark rate by 200 basis points to 18% in July, marking the highest level in over two years. This move was largely attributed to concerns over economic overheating and elevated inflation.

In a monetary policy draft released last month, the central bank indicated that it would need to uphold a tight monetary policy for an extended period to achieve a stable reduction in inflation, currently above 9%.

However, Deputy Governor Alexei Zabotkin noted on August 29 that an additional hike in the key rate for September is not guaranteed, as economic growth and lending are tapering off.

Recent macroeconomic forecasts from the government suggest an expected 3.9% growth in gross domestic product (GDP) for 2024, an increase from the 2.8% predicted in April. This new projection indicates a deceleration from the 4.6% growth rate recorded in the first half of the year. July’s data revealed a slowdown in consumer lending growth to 1.4%, down from 2.0% in June.

Inflation is anticipated to decline from the current annual rate of 9.1% to 7.3% for the entire year. Nevertheless, corporate lending growth, which significantly contributes to high inflation and economic overheating, rose to 2.3% in July, up from 1.5% in June despite high interest rates.

Pavel Biryukov, Chief Economist at Gazprombank, explained, "The slowdown in GDP growth is not driven by a decline in demand but is instead due to escalating challenges in production growth resulting from a worsening labor shortage." He forecasts a 100 basis points rate increase to 19%. Biryukov concluded, "In this context, the Central Bank is likely to opt for tightening its monetary policy."