Within a month and a half – at meetings on June 11 and July 23 – the Bank of Russia will raise the key rate to 6% per annum in equal steps of 50 bp, said Igor Rapokhin, senior strategist for the debt market at SberCIB Investment Research.
“We believe that the key rate will be increased by 50 basis points at the meeting on Friday, June 11th. This could be followed by another 50 basis point hike in July, after which the rate should remain unchanged until the end of the year, ”he said.
Rapokhin noted that recently the rhetoric of the Central Bank has become tougher due to the lack of signs of a steady slowdown in consumer price growth in May. So, in March, annual inflation was 5.8% – this is the maximum value since 2016.In April, the indicator was at the level of 5.5%, but then the regulator noted that this was due to the effect of a high base, since in the same month of last year a number of products have risen in price significantly. On June 2, the Central Bank reported that by May 24, annual and inflation had returned to 5.8%.
As a justification for his forecast, the analyst also pointed to the words of the chairman of the Central Bank Elvira Nabiullina that the increased inflation in Russia has become stable. In addition, he recalled that now inflationary expectations of the population are at a four-year maximum: in May they amounted to 11.3% for the year ahead. According to Rapokhin, a comparable level of inflationary expectations was observed in early 2017, when the key rate was 10% per annum, and not 5%, as it is now.
“Since the key rate is near historic lows against the backdrop of high inflationary expectations, the Central Bank of the Russian Federation will most likely decide to reduce this imbalance, taking into account the possible unwinding of the“ inflationary spiral, ”he explained.
Another reason for the rate hike is the statement by Finance Minister Anton Siluanov about the “overheating” of the Russian economy, which has recovered to levels that were before the coronavirus pandemic. Rapokhin recalled that then the key rate was just 6% per annum.
Sberbank expects inflation in Russia to begin to slow down late this summer, thanks to lower food prices amid a “good harvest” and a significant recovery in global supply chains. Earlier, the president and chairman of the board of Sberbank, German Gref, said that he did not expect annual inflation in Russia to rise above 6%.
On June 3, on the sidelines of the St. Petersburg International Economic Forum (SPIEF-2021), Nabiullina ruled out a key rate cut at the next meeting of the Central Bank’s board of directors. She noted that the specific size of the increase in the indicator will depend on the assessment of inflation dynamics, inflation forecasts, economic development and the pace of its recovery.
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