On Friday, the Central Bank will raise interest rates for the first time since February 2022

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CBR meeting – July 21, publication of results – at 13.30 Moscow time

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Forecast consensus: CBR will raise interest rate by 50 bp. up to 8.0%

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All surveyed analysts are waiting for a rate hike and a hard signal

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The weakening of the ruble increased concerns about inflation

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CBR can improve the forecast of economic growth

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The head of the CBR will hold a press conference on Friday at 15.00 Moscow time

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Reuters poll results are available at: reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?RIC=RUCBIR%3DECI

Elena Fabrichnaya, Alexander Szpik

MOSCOW, July 17 (Reuters) – The Russian central bank is expected to raise its key rate to 8.0% at its meeting on Friday, raising the cost of borrowing for the first time since the crisis in late February 2022 as demand and, as the ruble weakens, it increases inflationary pressures, analysts polled by Reuters said on Monday.

At the previous meeting in June, the CBR was already considering the options of increasing the rate in detail, there were proposals from 0.25 to 0.75 percentage points, but in the end it was decided to keep the rate and tighten the signal.

The last time Russia raised the rate to 20% was after the launch of a “special military operation” in Ukraine in February 2022. A series of cuts followed and since last September the CBR has kept the rate at 7.50% but has become increasingly aggressive in its rhetoric.

“Pro-inflationary risks are currently prevailing and even growing. Of course, we allow for the possibility of increasing the rate, but it will be a one-off, or it will be a whole cycle, everything will depend on the development of the situation that we will analyze – said Elvira Nabiullina, head of the CBR at the beginning of the month.

Sixteen of the 21 analysts and economists polled by Reuters on Monday said the central bank would raise interest rates to 8.0% on Friday. Three experts predict a smaller increase – by 25bps, and two – a one-off increase of 100bps to 8.5%.

“Even if the Central Bank raises its main interest rate by 100 bp on Friday, up to 8.5% – it is unlikely to strongly support the ruble, ”wrote Alfa-Bank experts, expecting a consensus of 50 basis points.

Analysts believe that the Central Bank will not even discuss the possibility of maintaining the current exchange rate level.

“The regulator is no longer discussing whether to raise or not, but rather chooses a step to raise,” said Mikhail Vasiliev, Sovcombank’s chief analyst, expecting a 50 basis point move and a strong signal of readiness for a hike. course at the next upcoming meetings.

“We believe that at this meeting NBP governors will also consider the possibility of raising the rate by 75 bp. and 100 bp These serious steps are possible if the ruble weakens further and weekly inflation accelerates in the last week before the meeting,” added Vasiliev.

Since the June meeting, inflation has started to accelerate and the ruble has weakened by another 9%, from 82.6 to 90 rubles per dollar, so the standard step of increasing the rate by 25 basis points will no longer be enough, the expert believes.

The Russian currency gradually weakened throughout the year as exports fell and imports recovered, but pressure on it increased sharply after an attempted armed rebellion in Russia in late June that sent the ruble to more than a 15-month low.

A rate hike seems almost inevitable, says Olga Belenkaya of Finam.

“Over the past week, the sharp depreciation of the ruble has stopped, Rosstat’s inflation data for June turned out to be lower than expected, moreover, the Central Bank attributed most of the acceleration in the monthly growth of consumer prices to the acceleration of prices for goods and services with unstable price dynamics. On this basis, there is no need for a one-time sharp hike in the key rate (by 100-150bps) at this time, and a 50bps hike as the first step in a possible cycle while maintaining a strong signal now seems more appropriate to us,” she said.

At the same meeting, macro forecasts will be updated, including the forecast of the average key rate.

According to Belenkay, the April forecast of the Central Bank (average base rate of 7.3-8.2% in 2023 or 7.1-8.6% from May 2 to the end of 2023) assumes an upper limit for the rate this year at 9.5%.

“For the time being, we expect that in the absence of new shocks, the key rate is unlikely to cross this line, rather it will peak at no more than 9%,” she said.

According to Gazprombank’s forecasts, if the ruble returns to the levels seen in the first half of June, the CBR is likely to choose a restrained step in raising the rate: by 25-50 basis points to 7.75-8.00%. Then we can count on a new period of calm, and inflation may be limited to 5.3% by the end of the year.

“If the ruble remains at the levels seen at the end of June, the development of events in the alternative scenario is more likely. He suggests that limiting the inflation risk will require a more decisive rate hike to 9.5% (or 50-75 bp in July and 125-150 bp in September). In this case, inflation could accelerate to 7.2% by the end of 2023,” Gazprombank wrote in the review.

The CBR meeting schedule for 2023 is available here. (editor Dmitry Antonov)