The Central Bank of Russia is gearing up to hold its final meeting of 2024 on December 20, amid widespread expectation among analysts and economic experts of another significant increase to the key interest rate. With many projecting the rate to rise to 23%, this decision has become central to discussions concerning Russian monetary policy as the country grapples with varying economic pressures.
According to several analysts surveyed, 23 out of 30 experts forecast the Central Bank will increase the key rate by 200 basis points, pushing it up to 23%. Some analysts are even leaning toward the possibility of the rate jumping to 25%, reflecting heightened concerns about inflation.
Maxim Pleskov, the chief analyst for bonds at SOLID Broker, explained the rationale behind this expected hike. “The anticipated increase is primarily due to rising inflation levels,” he stated. This sentiment is echoed by Artem Shishkin, the vice president of AVA Holding, who foresees the need for at least a 2% increase by year-end. The situation is compounded by the considerable rise of corporate lending, driving the Central Bank's decisions to tighten its monetary policy.
The anticipated rate increase is historical; if the projections are correct, it will mark the fourth consecutive time the Bank has raised the rate since July 2024. Over the past few months, the Central Bank has been increasing rates to combat inflation, which has been ticking up across sectors. The rate had been stable from December 2023 to July 2024 at 16% but began to escalate as inflation became more pronounced. On July 26, the rate rose to 18%, followed by increments to 19% on September 13 and 21% on October 25.
Notably, the depreciation of the Russian ruble, particularly evident during late November and early December, has triggered additional discussions around possible monetary tightening. Natalia Milchakova, Senior Analyst at Freedom Finance Global, pointed out the importance of this factor, saying, “The weakening ruble adds pressure for the Central Bank to respond effectively.”
While many experts anticipate the increase will take effect at the upcoming meeting, there are dissenting voices. Dmitry Pyanov, the first deputy chairman at state bank VTB, suggests prioritizing stabilization of the ruble instead of pushing the key interest rate higher. This perspective has gained traction among certain financial community members as they contemplate the broader impacts of rate hikes on lending conditions.
Interestingly, not all analysts agree on the necessity of the hike. Some forecasts indicate the possibility of not changing the rate from its current state of 21%. These views, albeit minority, reflect divergent beliefs within the financial analytics community about the optimal course of action for the Central Bank.
Historically, rate increases by the Central Bank have responded to immediate economic conditions. Following extensive increases from February 2022—when the Bank escalated rates to 20% due to sanctions and the ruble's decline following geopolitical tensions—there has been considerable fluctuation based on external and domestic pressures.
Looking toward the future, there remains uncertainty about how high the rate should rise. Analysts like Ramaninov suggest there could be scenarios where the Bank might even need to raise the key rate to 30% if inflationary pressures persist. This, he emphasizes, would be considered only under extreme conditions.
The discussion doesn't solely rest on economic theory; it also has real-world consequences for consumers. Increased key rates typically mean higher borrowing costs for both personal and corporate loans. This could lead to elevated rates on mortgages and consumer loans, thereby affecting everyday financial decisions for the average Russian citizen.
According to analyst Bogdan Zvarich from Banki.ru, the likelihood of the key rate reaching 23% during the upcoming meeting stands at 80%, attributing this probability to the rising inflation and weakening currency. He also notes, “The previous rate increases have not yet fully manifested across macroeconomic indicators, which might restrain the regulator from pursuing overly aggressive hikes.”
The upcoming Central Bank meeting is set to not only mark another pivotal moment for Russian monetary policy but potentially reshuffle the economic prospects over the coming months as businesses and individuals brace for the consequences.
All eyes will be on the Central Bank of Russia as it approaches its December meeting, where its decisions will likely shape financial dynamics across the nation for the foreseeable future. Whether the anticipated rate increases will serve their intended purpose of containing inflation or lead to unintended economic consequences remains to be seen. One thing is sure: the path of Russian monetary policy is as intricately woven as the economic fabric it aims to stabilize.
