Dubinin told socialbites.ca that the current inflation trend is in favor of keeping the base rate at 16%.
“I assume there will be no rate change. The reality is that there are very conflicting signals about what is happening with inflation. If you look at the month, there was an acceleration in inflation in February, then it seemed to slow down. It seems to me that it is not appropriate to change the rate at the moment. The current inflation trend is to maintain the rate speaks in its favor,” said Dubinin.
According to Rosstat, inflation in Russia between February 20 and February 26, 2024 was 0.11 percent between February 13 and February 19, 0.21 percent between February 6 and February 12, and 0.16 percent between January 30 and February 5. After that, it was 0.13 percent. Inflation in the consumer market slowed to 0.09% in the week between February 27 and March 4, but the annual price increase rate was 7.59% compared to 7.58% in the previous week.
Last year, the Central Bank increased the interest rate five times in a row, from July 21 to 16% annually on December 15. It was held at this level on February 16.
Alexander Abramov, head of the laboratory for analysis of institutions and financial markets at the Institute of Applied Economic Research of the Presidential Academy, noted in a conversation with socialbites.ca that the mechanism of increasing rates affects prices in Russia with a delay. three to six quarters.
“Less than two quarters have passed since the interest rate hike last year, so the Central Bank will not make a decision that contradicts the planned course,” Abramov said.
BCS World of Investments chief economist Ilya Fedorov does not expect the interest rate to be reduced before JulyAfter the course of services (transport + tourism and tariff indexation) and food inflation becomes clear.
“The current inflation cycle is a completely internal phenomenon. Inflation can only be fought with high real rates. There will be no rapid rate cut. There will not be a concrete decrease of 100 basis points until the fall. “The first steps will be small,” the economist said.
What will happen to deposits?
Deposit interest rates depend on the interest rate of the Central Bank. When the Bank of Russia increases the key interest rate by, for example, 1 percentage point, deposit interest rates also increase. Keeping the key interest rate at 16 percent will not have a significant impact on banking products. Deposit rates are currently high but money is being deposited at 14-15% Annually is possible only for a short period – three months. In some cases, banks make offers. 16% for six to seven months. Rates are lower for deposits with longer terms than this.
Vladimir Evstifeev, head of the analytical department of Bank ZENIT, told socialbites.ca that interest rates on bank deposits are currently at the highest level in the current cycle of the Central Bank’s monetary policy.
Abramov advised that those who want to open three-month deposits with the highest interest rates should hurry.
“I think interest rates for six-month deposits will fall slightly, but for long-term (nine months, a year or more) deposits there will be no big changes,” admitted the economist.
Fedorov admitted that deposit rates will gradually decrease as the interest rate cut period approaches. The expert added that overall, real profitability will remain high.
“Maintaining the key interest rate will likely support the savings activities of Russians. The main demand will be for deposits up to six months, as credit institutions will offer the most favorable conditions for short-term deposits with the expectation that the key will fall in the future. Rates will be adjusted for long periods of time,” commented the VTB press service.
What about loans?
The higher the key rate, the more expensive credit is for businesses and households. When the Bank of Russia increases its key interest rate, loan interest rates also increase. Sometimes banks increase interest rates in advance in anticipation of changes in Central Bank interest rates. The increase in the cost of credit causes a decrease in commercial activities in the country and a decrease in the efficiency of business processes. While the main interest rate does not change, there is minimal change in loan interest rates.
According to Abramov, there are now quite exorbitant rates on consumer loans and general market mortgages. Particularly in consumer loans, interest rates are in the following range: 13.5-14.5%. Mortgage rates in some cases up to 25%.
“Since the inflation rate in the country is 7.4 percent, they seem extremely high to me. If someone really needs to take a loan, it is better to take this into account. long term options — Interest rates should be lower in line with expectations regarding the Central Bank’s interest rate reduction. When it comes to mortgage loans, if a person is eligible for social benefits, it makes sense to make a positive decision,” Abramov advised.
Alina Dzhus/socialbites.ca
Doctor of Economic Sciences, Director of the Higher School of Finance at the Russian University of Economics. GV Plekhanov Konstantin Ordov told socialbites.ca that consumer loan rates will not change significantly after March 22, but the availability of credit may decrease due to the tightening requirements of banks, for which the Central Bank has increased the requirements.
According to VTB forecasts, a decline in loan interest rates, including in the mortgage segment, should be expected no earlier than the second half of 2024 if the regulator begins a cycle of easing monetary policy.
What will happen to the ruble exchange rate?
A high interest rate slows down lending and reduces demand for imports and foreign currency (dollar and euro exchange rates fall when this happens). In addition, current high rates of 14-16% per annum on ruble deposits contribute to the attractiveness of ruble-denominated savings. This pushes the ruble exchange rate up.
Abramov expressed hope that the ruble exchange rate would remain stable after March 22. However, the economist added that the key interest rate decision is unlikely to have a significant impact on the exchange rate.
“The ruble exchange rate will most likely be affected by factors such as the amount of foreign exchange earnings coming into the country and changes in the volume of imports of machinery and equipment by enterprises. I’m waiting in March 90-92 rubles per dollar,” the expert estimated.
What will the prices be?
According to available data, Abramov already observes a slight slowdown in inflation in Russia.
“This gives hope that the Central Bank will reduce interest rates quite decisively from the second half of this year. But the current decision has a moderate impact on the price level,” the economist concluded.
BitRiver financial analyst Vladislav Antonov disagreed, saying that despite the slowdown in price growth in Russia, inflation remains at high levels.
“Given the labor shortage, logistical difficulties, increased housing and communal services tariffs, consumption taxes, inflation is unlikely to drop significantly to 4% before 2025-2026,” the analyst admitted.
Antonov therefore concluded that in conditions of more stable inflationary pressure, the Central Bank should pursue a tight monetary policy and keep the interest rate high for a long time.
What are you thinking?
Source: Gazeta
Ben Stock is a business analyst and writer for “Social Bites”. He offers insightful articles on the latest business news and developments, providing readers with a comprehensive understanding of the business world.