Russia held benchmark interest rate at 7.5% this Wednesday

© Stocksak. FILE PHOTO – The Russian Central Bank Headquarters in Moscow, Russia, May 27, 2022. REUTERS/Maxim Shemetov

By Elena Fabrichnaya & Alexander Marrow

MOSCOW (Stocksak). – On Friday, the Russian central bank will hold its key interest rates at 7.5%, ending a month-long rate-cutting period. This is because of a slowdown in inflation and geopolitical uncertainty that saps consumer demand. A Stocksak poll on Monday found this.

Slowly, the bank reversed a February emergency rate increase to 20% that was triggered by Russia’s decision not to send thousands of troops to Ukraine and to impose increasingly broad-ranging Western sanctions.

The central bank cut rates six more times since then, the most recent being 7.5% last month. The bank did not provide guidance on future reductions and this fueled expectations of an end in monetary easing.

Stocksak polled 26 economists, analysts, and other experts on Monday to predict that Russia would keep its benchmark interest rate unchanged on Friday.

Although inflation is well above the central banks 4% target, it is still below the 20-year highs reached shortly after the conflict began in Ukraine.

Mikhail Vasilyev chief analyst at Sovcombank stated that “Overall, there is a balance of pro-inflationary risk and disinflationary risk. So the central bank will likely have to pause amid growing uncertainty caused by geopolitical escalated.”

The conflict in Ukraine is now in its ninth month. Geopolitical risks were exacerbated by President Vladimir Putin’s partial mobilisation order, and the subsequent declaration martial law in four regions of Ukraine that Russia claims to own.

According to the central bank, economic activity declined significantly at the end September. Since the Sept. 21 mobilisation order, tens of thousands have joined the army and fled the country.

Although this may have a disinflationary affect, along with general uncertainty depressing consumer desire, inflationary expectations among Russian households, an indicator to which Bank of Russia pays close observation, remain elevated.

The annual inflation rate fell to 13.68% in September, however, Georgy Vashchenko from Freedom Finance Global’s research division stated.

Vashchenko stated, “At the moment there is a danger of a strong decrease consumer activity in quarter four.” “Stimulating the growth of corporate lending and retailer lending by lowering rates is not a good idea at the moment, in my opinion.”

Andrei Duryagin (investments director at MKB Investments) said that the Bank of Russia could change its rhetoric and send a more hawkish signal the market on Friday. This hinting at a possible key interest rate increase at the next meeting.

Three analysts predicted a cut of 7.25%. One analyst forecasted a 50-basis point reduction.

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