The key rate may be increased again. What to expect from the Central Bank meeting? Analyst Vasiliev estimated that there is a 60% probability that the Central Bank will increase the interest rate to 17% 06/03/2024, 08:04

The Central Bank will consider two options (maintaining and increasing the main interest rate) on June 7, VTB Group chief economist Rodion Latypov and Sovcombank chief analyst Mikhail Vasiliev told socialbites.ca. At the same time, Latypov thought that the most likely scenario would be to keep the key rate at 16% and increase Vasiliev to 17%.

On June 7, former deputy chairman of the Central Bank, Sergei Dubinin, spoke in favor of maintaining and increasing the interest rate at BCS World of Investments, Zenit Bank and the Presidential Academy, Russian Standard Bank and REU. Plekhanov. Central Bank Deputy Governor Alexey Zabotkin stated that the option to increase the interest rate will be thoroughly evaluated on June 7.

“My personal view is that the regulator will leave the key interest rate unchanged. There was no common event or change in the economy that would require the Central Bank’s reaction. The situation continues as in the first six months of 2024. Actually, even longer. Inflation remains above the Central Bank’s plans. This is a negative factor, but inflation has not led to some kind of shock growth. Everything remained in the inertia scenario,” Dubinin explained.

Therefore, in his opinion, there is no reason to resort to a sharp and responsible decision to increase the interest rate, but lowering it would also be unreasonable.

“In the Central Bank’s recently updated forecast, the maximum level of the average key interest rate in 2024 is 16 percent. A 17 percent increase was certainly considered an alternative scenario. In our opinion, the statistics released since then do not allow us to believe that the alternative scenario has become the base scenario,” Latypov confirmed.

Why can the Central Bank increase interest rates?

According to Vasilyev, the probability of raising the key interest rate is about 60 percent, and the probability of maintaining it is 40 percent.

“In the base scenario, we expect the key interest rate to be increased to 17 percent at the next meeting (7 June or 26 July). “We believe that the Central Bank will keep the key interest rate at 17 percent until the end of the year,” the analyst emphasized.

He did not rule out the possibility of raising the key interest rate to 18-20% if inflation does not slow down in Russia.

According to the Ministry of Economic Development, annual inflation in Russia as of May 27 was as follows: 8.05%. Two weeks ago, the Central Bank of Russia published its seasonally adjusted inflation forecast for April; The forecast rose to 5.8% from 4.5% in March. The most important is core inflation (Indicator of the most stable part of inflation) It accelerated from 7.1% in March to 8.3% in April; This is the highest level since November. Vasiliev emphasized that inflation was even higher in May.

Zabotkin stated that inflation was above the Central Bank’s estimate of 4.3-4.8% this year. According to Vasiliev, annual inflation in 2024 will be 6.5 percent, while the financial market forecast is 5.2 percent.

“So inflation is likely to be well above the target of 4 percent again this year. “This will be the fourth year in a row that the Bank of Russia has failed to meet its inflation target, which only worries the Central Bank,” the analyst said.

Vasiliev reminded the list of other criteria of the Central Bank regarding interest rate increases:

— There is no sign of a decline or further increase in consumer activity. This point was fulfilled: consumer demand remained high and loans continued to grow at the same high rate in April as in March, despite the high interest rate.

– Increasing the rigidity of the labor market and the scale of output in the economy. This point is being fulfilled: unemployment in March reached a historical low of 2.7%, and GDP growth in the first quarter was 5.4%, contrary to the Central Bank’s forecast of 4.6%.

Vasiliev emphasized: The Central Bank already has all the arguments to raise the key interest rate, but the regulator may postpone such a decision until July 26.

“Most likely, the Bank of Russia will prefer to wait for another meeting to see the full picture of what happened in the two quarters of this year. If inflation rises and/or remains at current levels, the regulator could increase the key interest rate by 200 basis points – up to 18% – in the summer,” summarized Ilya Fedorov, chief economist at BCS World of Investments.

What will happen to deposits?

Currently, interest rates on deposits in Russia vary. 10% before 17% yearly. VTB expects the current conditions on deposits to continue for three to four months in advance, while individual promotions with temporary increases in rates for short periods are also possible.

“Banks evaluate the possibility of changing the conditions of individuals’ deposit and savings accounts according to market conditions and liquidity needs. The key interest rate is the main indicator that credit institutions focus on in terms of the cost of short- and medium-term borrowing, the press service noted.

In other words, if the Central Bank increases the interest rate by 1 point, deposit interest rates also increase by 1 point. or more.

VTB announced that the best time to open a deposit is now, and the most attractive deposits for the customer are with a maturity of up to six months.

Vladimir Evstifeev, head of the analytical department of Zenit Bank, added that deposit rates will increase if the key interest rate is increased or the signal from the Central Bank is clearly tightened on June 7.

“In this case, short-term deposits of three to six months look more profitable, because interest rates are likely to remain high after this period,” the expert said.

What about loans?

According to the Central Bank, TSC for untargeted consumer loans in Russia as of May 16, 2024 (total cost of the loan taking into account commissions and all payments) 21.49% before 59.829% yearly. According to Sravni.ru, PSK for mortgages is available at: 14% before %27. Deposit rates also depend on the key interest rate: if the Central Bank increases it by 1 percentage point, banks increase lending rates by 1 percentage point. or more.

VTB advised Russians to proceed from their need for credit, not to wait for a better time or, on the contrary, to take a loan at all costs:

“If a client is currently facing a serious housing problem or other financial problem, then of course it is worth taking care of it. For example, the value of real estate increases in the long term and the mortgage allows you to fix the price per square meter.”

Moreover, today you can still get a mortgage at a low rate: 8% for a concessional mortgage and 6% for a family mortgage.

Evstifeev does not expect a decrease in loan volumes even if the key rate is increased to 17-18%.

What will happen to the ruble exchange rate?

Maxim Tymoshenko, Director of the Financial Markets Operations Department of Russian Standard Bank, believes: High interest rate will act as a factor supporting the ruble exchange ratebut this effect will be limited. The analyst is sure that the main factor determining the exchange rate of the national currency will be the export-import balance:

“The strengthening of the ruble in the last two weeks in a row against the background of the contraction in imports should not be misleading, because the pent-up demand for money will sooner or later be realized while new supply chains are being built. “We should not underestimate the decreasing export revenues despite the falling oil prices.”

According to Tymoshenko, the dollar exchange rate will safely return to levels above 90 rubles in the summer months. According to Vasiliev’s forecast, the ruble rate in June will remain stable: the dollar will cost 87-92 ruble, euro – 94-100 ruble, yuan – 12-12.7 ruble In general Ruble has remained stable for seven monthsThe analyst emphasized this. The dollar has been trading in the range of 87-94 rubles all this time and will remain at the same level in the coming months.

What are you thinking?

The Central Bank will keep the policy rate at 16 percent or increase it to 17 percent annually at the meeting on June 7. This forecast was given to socialbites.ca by economists and financiers. There is currently no consensus in the financial market in favor of any option regarding the actions of the Central Bank. What Russians can expect, how deposit and loan rates will behave and whether the price of the ruble will continue to increase, socialbites.ca’s material explains.



Source: Gazeta

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