Russia’s central bank is set to pick up where it left off last year by keeping interest rates unchanged on Friday, according to all economists surveyed by Bloomberg, though they diverge over the path of monetary policy in the rest of 2023.
(Bloomberg) — Russia’s central bank is set to pick up where it left off last year by keeping interest rates unchanged on Friday, according to all economists surveyed by Bloomberg, though they diverge over the path of monetary policy in the rest of 2023.
Governor Elvira Nabiullina said after the last meeting in December the Bank of Russia was sending a “neutral signal” about what it plans to do next, with a cut, hike or hold all among possible options. In the view of every analyst polled by Bloomberg, the stance means the benchmark will stay at 7.5% this week.
The consensus falls apart when looking toward March and beyond. Economists at Goldman Sachs Group Inc. are in a small minority predicting a hike already next quarter. But a majority that includes Barclays Plc, JPMorgan Chase & Co. and Bloomberg Economics take the opposite view and see rates falling in the months ahead.
Among the outliers, Goldman’s call for the key rate to end the year at 8.75% is 2 1/2 percentage points above S&P Global’s prediction, according to forecasts compiled by Bloomberg.
The differences are down to a split in assessing the risks ahead as well as dueling views over the priorities that will shape decision-making, especially with the stranglehold of sanctions hurting government revenue and spending on the war in Ukraine putting a strain on public finances.
“Price developments in Russia will warrant a more hawkish monetary policy stance going forward, and therefore we think the central bank will start a hiking cycle from the middle of the year,” Goldman economists including Clemens Grafe said in a report.
In recent months, the central bank has indeed been focusing on threats to inflation stemming from budget outlays, growth in nominal wages and labor shortages as a result of the Kremlin’s call-up of men to fight in Ukraine.
President Vladimir Putin’s government is meanwhile pressuring the Bank of Russia to turn more upbeat about the outlook for the economy and even signal it’s ready to loosen monetary policy, Bloomberg News reported this week.
What Bloomberg Economics Says…
“Inflation’s run rate remains below the central bank’s latest projections, but we expect it to keep the policy rate unchanged as consumer lending growth surges into double digits, budget spending is rising and export revenues are declining.”
—Alexander Isakov, Russia economist. For more, click here
The statistical effect of a high base last year has sent annual inflation readings down below 12% in December — from a peak of near 18% in April — and put it on track to reach the central bank’s 4% target this spring. Price expectations for a year ahead, a key factor for policymakers, have also dropped for three straight months but remain close to 12%.
Measures of short-term inflation paint a different picture, with weekly price growth nearing levels last seen more than half a year ago, in part as a result of one-off adjustments.
Revised forecasts from the Bank of Russia on Friday may add clarity and Nabiullina will likely look to telegraph her plans at a news conference after the rate decision.
Cheaper money has helped Russia avoid a sharp recession despite sweeping international sanctions.
Official borrowing costs haven’t changed since the central bank paused its steep monetary easing cycle that more than reversed an emergency hike after the invasion of Ukraine almost a year ago. Between April and September last year, it delivered 12.5 percentage points of cuts in six steps to bring rates below their pre-war level.
“We forecast a further slowdown of annual inflation in February and March driven by base effects,” Barclays economists including Zalina Alborova said in a report. “We expect the Russian central bank to stay on hold at its next meeting, and to maintain its neutral signal.”
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