Almost walked – Newspaper Kommersant № 164 (7126) from 09/11/2021

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The key rate of the Central Bank was raised by the board of directors of the regulator by just one step, and the preservation of the rate at the same level of 6.5% per annum was discussed. The new rate is likely close to the peak for the coming months, and the Bank of Russia, which, however, is ready for further tightening of monetary policy (MP), expects a decline in current inflation in the fourth quarter of 2021. Based on the Central Bank’s estimates, supply in the Russian economy still does not keep up with demand, corporate profits this year will be high, however, at least as long as the forecasts for medium-term GDP dynamics remain the same, the “ceiling” of 2-3% of growth remains.

The next, fifth this year, round of tightening the monetary policy of the Bank of Russia was approved by the regulator’s board of directors. The key rate has been increased by one step, 0.25 percentage points, and until October 22, 2021 it will be 6.75% per annum.

If we talk about the official rhetoric of the regulator, then it has additionally tightened, and this is noted by most of the banking analysts. Further repeated rate hikes, based on the Central Bank’s press release, are likely: “If the situation develops in accordance with the baseline forecast, the Bank of Russia admits the possibility of further increases in the key rate at the next meetings.” Although it is not said directly, at the next meeting of the regulator’s board of directors, the inflation forecast for 2021 may be revised – now its “ceiling” is 6.2%, the current levels are higher (6.74% yoy as of September 6). Inflationary expectations of the population and industry have been at historic highs for half a year now.

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But outside of pure rhetoric, it makes sense to describe the situation in a completely different way. For example, the statement of the Central Bank unexpectedly unequivocally states: “According to the forecast of the Bank of Russia, annual inflation will begin to slow down in the fourth quarter of 2021.”

Let us remind you that the end of the year is not the most traditional time for a decrease in the rate of price growth. However, based on the logic of the Central Bank, a quick slowdown in inflation is almost inevitable: if the COVID-19 pandemic continues to continue, it will cool demand around the world; if it dies down, the opening of external tourism and short-term structural changes in demand will also be anti-inflationary. And although the head of the Central Bank Elvira Nabiullina made a reservation that the anti-inflationary effects of the pandemic are unstable (in particular, the second wave of the pandemic increased pro-inflationary pressure), both scenarios should play against the rise in prices, as well as the seasonality shifted to the fall in the agricultural market and other expected anti-inflationary effects.

In essence, the Central Bank, by raising the rate and formally tightening the rhetoric, is playing against only one factor – inflationary expectations. Monetary conditions after the previous decisions of the Bank of Russia have already tightened, and the very fact of the discussion by the Board of Directors of the Central Bank of the refusal to change the key rate (and this was, according to Mrs. Nabiullina, one of the two main options – an increase in the rate by 0.5 percentage points was “On the table,” but almost never discussed) is enough to suggest that the cycle of monetary policy tightening is almost over, as, for example, the situation in ING is considering. Actually, the very “tough” statement of the Central Bank on the rate can be read differently: the rate hike may (or may not) take place not in October 2021, but “at one of the next meetings”, if it is needed by that time.

Tough rhetoric with moderate actions (the Central Bank could hardly refuse to raise the rate – this would most likely be perceived as “indecision” of the regulator with some increase in inflationary pressure), meanwhile, the Bank of Russia broadcasts against a very favorable background: in the interpretation of the Central Bank, the main reason for the growth prices are not problems in the economy that are difficult to solve (these include only logistical disruptions in imports, limiting, for example, AvtoVAZ), but too rapid recovery of demand, which, with all the desire, cannot be instantly covered by supply. “Growing domestic and foreign demand and high corporate profits support investment activity” – this phrase from the Central Bank’s press release adequately describes the expected results of 2021: the corporate sector is in excellent condition, and this will increase its investment opportunities. They are, of course, limited by the state of the labor market, where by the summer of 2021 there is a rather acute shortage of not only low-skilled personnel (including due to closed borders), but also specialists. But this in 2021–2023 should only spur the restructuring of inefficient employment in the Russian economy.

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What is perceived now (including because of the “covid” background) as economic problems can ensure a more stable medium-term economic development, moreover, in new sectors.

At this point, the statement of the Board of Directors of the Bank of Russia is somewhat more optimistic than the draft of the main directions of the monetary policy of September 1 (see Kommersant of September 4): while the Central Bank believes that the structural changes in 2020-2021 did not affect the “ceiling” of GDP growth, until 2024 it remains at the level of 3%. It does not follow from this that growth cannot exceed 3%, but in this case, phenomena of “overheating” are likely, which, we note, can be seen in the economy of the Russian Federation in the summer and autumn of 2021, that is, right now.

Dmitry Butrin

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