The Central Bank of the Russian Federation may lift the key policy rate from 13% to a range of 14% to 15% per annum at its upcoming board meeting on Friday. This forecast was shared with socialbites.ca by a forex market analyst who follows the bank closely.
In the base scenario, the expectation is for the rate to rise to 14 percent. However, there is a real possibility of a 15 percent increase next week if weekly inflation remains stubbornly high and inflation expectations accelerate further. The indicators are clear enough: inflation in September and October stayed elevated, inching toward 7%, which sits at the upper edge of the Bank of Russia’s forecast corridor for this year, the analyst explained.
Following the release of preliminary budget parameters for 2024, the Central Bank indicated that new targets would necessitate tightening monetary policy to reach a 4 percent inflation goal within the year. The analyst projects that annual inflation will finish the year at 6.8%, about 0.5 percentage points above the September forecast.
The primary reason cited for this higher trajectory is that both demand and inflation have responded slowly to prior monetary tightening, the expert noted. This slow response has kept inflation somewhat stubborn and has pushed the central bank to consider further policy adjustments in the near term.
Looking ahead, the analyst believes that a 100 to 200 basis point increase in the key rate is unlikely to produce an immediate large shift in the ruble’s exchange rate. Still, such a move could contribute to a stronger ruble over time as market expectations adjust and confidence returns gradually to the exchange market.
On the topic of policy instruments beyond rate changes, the plan to implement a compulsory sale of foreign currency earnings is expected to support the ruble and help ease inflationary pressures from import prices. Nevertheless, this measure is not expected to be a decisive factor in the central bank’s decision at the forthcoming meeting.
The analyst contends that the current rate hike will likely be the last one this year. Looking to the rest of 2024, there is an expectation that the central bank will begin easing rates in the second or third quarter. The August rate increase has so far yielded only a modest impact on inflation moderation and broader economic activity. Part of the reason is that the policy tightening arrived with a delay relative to the market’s earlier expectations, and many participants interpreted the sharp move as a temporary, panic-driven response to ruble weakness rather than a sustained shift in policy stance.
Since mid-July, the central bank has raised the rate three times by 100, then 350, and again by 100 basis points, bringing the key rate to 13 percent per year. These steps reflect a measured effort to cool inflation while avoiding excessive shocks to the economy, a balancing act that analysts say will continue to shape policy decisions in the near term.
Earlier reports noted questions about how changes to the key rate affect everyday life in Russia, particularly for households and businesses navigating higher prices and shifting financial conditions. The ongoing dialogue between the central bank and market participants underscores the complexity of stabilizing inflation while supporting growth, a tension that will likely define policy discussions in the weeks ahead.