Russia’s Central Bank Interest Rate Outlook

By Elena Fabrichnaya
MOSCOW (Reuters) – Russia’s central bank is likely to keep its benchmark interest rate unchanged at 18% in its upcoming board meeting, as indicated by a majority of 27 analysts polled by Reuters. This decision comes amidst early signs of the economy cooling down.

Fifteen of the analysts predicted that there will be no change, while seven forecast a rise to 19%. Four analysts anticipated an aggressive 200 basis points (bps) increase to 20%, while one expected a rise of 150 bps to 19.5%.

Natalia Orlova, Chief Economist at Alfa Bank, noted: “Data released in August, including GDP growth for July and inflation expectations, do not provide a clear signal. The deflation observed recently is a key argument for maintaining the interest rate at 18%.”

Expectations have shifted from the previous Reuters poll conducted in late August and early September, where the consensus forecast was a 100 bps rise to 19% in the September meeting. The central bank previously raised its benchmark rate by 200 bps to 18% in July, citing economic overheating and high inflation as major factors.

A draft monetary policy document from last month indicated that a tight monetary policy would need to be maintained for an extended period to achieve a sustainable decrease in inflation, which is currently above 9%. However, Deputy Governor Alexei Zabotkin suggested that another hike might not be certain due to slowing economic growth and lending.

Recent macroeconomic forecasts suggest that the government expects GDP growth to be 3.9% in 2024, an increase from 2.8% in earlier forecasts. However, this marks a slowdown from a 4.6% growth rate in the first half of the year. Consumer lending growth also showed a slowdown, falling to 1.4% in July from 2.0% in June.

Conversely, corporate lending growth has accelerated to 2.3% in July from 1.5% in June, despite high interest rates, contributing to inflationary pressures. Pavel Biryukov, Chief Economist at Gazprombank, commented that the slowdown in GDP growth stems not from demand decline, but from production growth difficulties due to a worsening labor shortage. Biryukov anticipates a 100 bps rate hike to 19%, asserting that the Central Bank is likely to tighten its monetary policy under current conditions.