what will be the rate
At the Board of Directors meeting on July 22, the Central Bank will reduce the key rate from 9.5% to 8.5% – 9% per annum. That is 0.5, 0.75 or 1 percentage point (pp). Such an estimate was given to socialbites.ca at the financial holding BCS World of Investments. The Expert RA rating agency confirmed that the most likely rate range is 8.5-8.75% per year. The bank called the level “Russian Standard” 8.5-9%. VTB Bank’s brokerage division – VTB My Investments, Absolut Bank and National Research University Higher School of Economics – believes the Central Bank will cut the rate to 9%. Representatives of the National Rating Agency and the Ural Bank for Reconstruction and Development (UBRD) are confident that the figure will drop to 8.5% per year.
“There is a tendency to slow down the growth of prices with a local transition to the deflation stage – a fall in prices. Therefore, the Central Bank will definitely reduce the interest rate on July 22. One question, one step.
At least the indicator is expected to drop from 9.5% to 9%. We can expect 8.5%. However, it is possible for the regulator to change the step size, which is a multiple of 0.5 pp. And reduce the rate to a compromise value of 8.75% per year. “The yield curve for federal loan bonds is now almost completely below that level,” he said.
Rosstat recorded a price drop of 0.35% in June. This is the biggest monthly drop since August 2017. On an annual basis, inflation slowed to 15.9% in June from 17.1% in May. As the Ministry of Economic Development noted, the main factors of deflation in June were the strengthening of the ruble and lower consumer activity. However, the Central Bank noted that this slowdown in price increase cannot be considered as deflation. From July 4 to July 10, prices rose 0.23%, according to Rosstat’s statistics.
“The fruit and vegetable segment and some of the non-food products now play the main role in lowering prices. There are also pro-inflationary risks that could emerge in the fall as demand recovers, seasonal factors weaken and the ruble exchange rate likely moves to weaker levels, said Grigory Zhirnov, Chief Economist at VTB My Investments.
He explained that the possibility of taking a more measured decision by the regulator was also mentioned in the statements of the Central Bank representatives regarding the return of the key rate to the normal level in about two years.
“The recession in the economy may be less pronounced this year. It seems unlikely that the decline in Russia’s GDP will exceed 5-6% by the end of 2022. This is also an argument in favor of a more conservative solution. Finally, the inflation expectation of the population rose to 12.4%. “This factor also indicates that the Central Bank will take a smaller step to change interest rates,” he said.
In 2021, the Central Bank increased the rate eight times in a row. The Central Bank’s key rate hike cycle began in March 2021 at 4.25% annualized. On February 11, 2022, the regulator increased the indicator by 1 percentage point to 9.5%, the maximum since spring 2017. Then the regulator immediately increased it to 20% against the background of the sanctions. On March 18, the rate was kept at 20% per annum. On April 10, the Central Bank reduced the rate to 17% annually and to 14% on April 29. On May 26, the key rate was reduced to 11% per annum. June 14 – Returned to February 11 level with 9.5%.
What about deposits, loans and rubles?
Consumer loan interest rates may decrease by 1-2 points, and deposit rates by 0.75 points-1 points. after the interest rate cut. This estimate was given by Vladimir Zotov, operating manager of the UBRD Treasury. Namely – up to 14-15% and up to 7-7.75% per year, respectively.
“Reaction to deposits will be faster than to loans. For example, deposit rates may fall in the first week after the decision of the Central Bank of Russia, and on loans – in the second or third week,” he said.
According to the expert, the Central Bank’s decision on the exchange rate will not affect the exchange rate of the ruble against the dollar and the euro.
“For example, the ruble/dollar exchange rate is now more affected by other factors. These are the recovery rate of imports and possible interventions of the Ministry of Finance. Most likely, the ruble will continue to strengthen: the foreign exchange surplus on the market from exports has not disappeared anywhere, and the restoration of imports is possible only until the end of the year, ”says Zotov.
What will the rate be at the end of the year?
However, Vasily Karpunin is confident that the Central Bank will continue to lower the key rate in 2022. According to his forecasts, by December this figure will fall to 7.5-8% per year. Similar figures were given by Vladimir Zotov and Director of Financial Market Operations of Russian Standard Bank Maxim Timoshenko. According to Tymoshenko, this level of the rate will be facilitated by the fall in inflation on the backdrop of stagnation in the economy and consumer demand.
“In the absence of additional shocks, the key rate at the end of the year will be 7.5-8% per annum,” said Anton Tabakh, chief economist at Expert RA.
According to Zhirnov, the Central Bank will reduce the rate to 8-8.5% by December and to 7-7.5% by 2023.