Interest Rate Hike Uncertainty in Russia

By Gleb Bryanski

Moscow (Reuters) – Another key interest rate hike in September is not certain due to slowing economic growth and lending, according to senior central bank official Alexei Zabotkin. These comments are the most dovish since the July rate hike.

The regulator raised its benchmark rate by 200 basis points to 18% in July, the highest level in over two years, citing economic overheating and high inflation. The central bank’s board will next meet on September 13.

Zabotkin noted that the board will evaluate the possibility of an additional key rate increase during upcoming meetings, indicating that such an increase is not predetermined and will depend on incoming data.

While consumer and corporate lending have slowed in August, preliminary inflation figures do not suggest a moderation in price growth. The central bank released draft monetary policy guidelines for the next three years, emphasizing the need to maintain a tight monetary policy for a sustainable decrease in inflation, currently above 9%.

In a high-risk scenario, inflation could rise to 13% to 15% by 2025. Conversely, the base scenario forecasts inflation dropping to 4.0% to 4.5% in 2025 due to the central bank’s measures, stabilizing around the 4% target level thereafter.

The guidelines followed strong economic data suggesting solid growth across various sectors, hinting at a brighter outlook despite Western sanctions. The central bank anticipates a decline in imports in 2024 due to payment and logistical challenges exacerbated by sanctions.

Russian companies have reported delays in transactions with China, as Chinese banks have tightened compliance to avoid sanctions. “Imports will decrease in 2024 due to strengthened sanctions barriers,” the central bank stated, but it expects medium-term improvements in this area.