The chief analyst of Sovcombank, Mikhail Vasiliev, noted that the Central Bank will place primary emphasis on the pace of price increases when assessing policy moves. He suggests inflation will steer decisions as the year closes.
Current inflation sits above the Central Bank’s year-end projection of 7 to 7.5 percent. Rosstat data show price growth from the start of the year through December 4 at 6.8 percent, while the Ministry of Economic Development reports annual inflation surpassing 7.5 percent by that date.
Vasiliev commented that analysts anticipate inflation around 7.6 percent by year end, while price growth could edge up to 7.8 percent. He linked higher price levels to a weaker ruble in the year so far, noting a 32 percent rise in the dollar and a record-low unemployment rate near 2.9 percent, with rising inflation expectations and a relatively loose fiscal stance contributing to the outlook.
Pro-inflationary drivers gaining momentum
Additional forces that lift inflation are accumulating, including varied conditions and events that feed price increases within the economy.
Vasiliev pointed to a labor market that remains exceptionally tight with continuing staff shortages. He observed that unemployment reached a historic low in October and does not expect a marked improvement in the near term. As a result, wage growth is outpacing productivity as employers compete for scarce workers.
Rosstat data show September salaries rising by 7.2 percent in real terms and by 13.6 percent in nominal terms. Central Bank metrics indicate inflation expectations among the population rose in November, with observed inflation around 11.2 percent in October and 13.9 percent in October on alternate measures. A third factor supporting higher rates is the ongoing risk of ruble depreciation.
The analyst noted that since the last Central Bank meeting in October, the ruble appreciated from about 93 to roughly 91 per dollar. At the same time, Brent crude dipped about 16 percent from $90 to $75 per barrel. He highlighted that an exchange rate stabilizing in a band of 90 to 95 rubles per dollar is possible, helped by compulsory sales of foreign earnings by large exporters.
In November, loan growth cooled further. Bank data show a contraction across consumer lending, with overall credit activity slipping, underscoring tighter financial conditions. Analysts discussed the possibility of a sharper rate move or keeping rates steady, emphasizing that the decision will hinge on inflation dynamics and broader indicators.
Some forecasters argue that if the central bank fears risks to growth, maintaining or lifting rates could be warranted. Others saw a scenario where a 15 percent level might offer a safer path. Assessments from market participants stress that policy moves will be calibrated against the inflation backdrop and monetary momentum.
Ruble outlook and market reaction
How the ruble responds will depend on market interpretation of the central bank’s stance. Short-term pressure on the currency is possible, but a sustained rate path could bolster the ruble if higher rates successfully curb inflation expectations.
Experts note that immediate currency reactions may be muted given sanctions and currency controls since 2022. The longer-run impact depends on how strongly higher rates support the ruble and the degree to which these measures translate into durable price stabilization.
Some analysts suggested that the ruble could see modest gains after the decision, while others cautioned that the trajectory would likely stay within a broad range. The trading corridor may shift slightly, but a dramatic, rapid revaluation was considered unlikely in the near term.
As exporters continue to convert earnings and oil prices fluctuate, the lower edge of the ruble’s range could drift. Market watchers emphasize that post-decision fluctuations tend to be short-lived and typically limited in magnitude.
In terms of consumer costs, higher policy rates are expected to lift deposit yields and curb some demand. The resulting effect would be a slower pace of credit growth and a cooling of imports, with savings potentially drawing more attention from domestic savers.
Forecasts for December put the dollar near the high 80s to low 90s rubles, the euro in the mid to high 90s, and other currencies following a similar pattern. Analysts have noted that current ranges could persist into early next year as markets reassess the policy stance and inflation trajectory.
Analysts argue that any policy tightening would transmit through the economy, influencing the cost of borrowing and holding money. The central bank’s communication and guided expectations will shape how credit costs evolve and how households adjust their spending and saving decisions.
What lies ahead
Vasiliev’s base scenario sees the December rate increase as the final move of this cycle. He suggests the bank should maintain a firm message that higher rates are here to stay, reinforcing policy credibility and ensuring that tighter financial conditions endure. This approach would strengthen the transmission of rate decisions into broader borrowing costs and deter any premature easing.
Looking ahead, the central bank could consider lowering rates mid-2024 if inflation slows meaningfully. In such a scenario, the rate might ease toward around 6 percent by year-end and the key rate could drop toward 12 percent, signaling a welcoming shift for the economy without sacrificing price stability.