Will it be possible to curb inflation, what will happen to loans, deposits and the ruble exchange rate?
At the first meeting of the Board of Directors after the summer holidays, the Bank of Russia raised the key rate to 6.75%. This was the fifth decision of the regulator to increase it for the current year. The key rate was changed for the first time in March from 4.25% to 4.5%. Then it increased three more times and reached 6.5% in July. The current increase was the expected step for the market. The Bank of Russia explained its decision by its desire to reduce inflation, which by the end of August had reached its maximum in five years – 6.8%, according to Rosstat.
How exactly the increase in the key rate will affect the wallets of Russians, experts said.
Garegin Tosunyan, President of the Association of Russian Banks, Academician of the Russian Academy of Sciences: “The Bank of Russia has raised the key rate to 6.75% and justifies this decision by accelerating inflation. In our country, all decisions of the regulator are based on this indicator, although it is far from the main one for the development of the economy.
I do not believe that in the current environment, raising the rate will be an effective way to curb inflation. For the development of the economy, it is important that the Bank of Russia pursue a policy to reduce the key rate and ensure that interest rates on loans in banks are constantly decreasing, so that business can develop without fears, and there would be healthy competition in the market.
In connection with the increase in the key rate, ordinary Russians need to prepare for the fact that interest rates on loans, at least, will not decrease. Russian business today operates under conditions of almost double-digit lending rates, and this is very difficult. The need to service its obligations to banks is incorporated into the final cost of goods and services by business, which affects the lives of all Russians who pay all these costs out of their own pockets. Today, all business in the world works with credit rates at the level of 1-3% maximum, and we work in conditions where interest on loans reaches 10%, or even higher. It is clear that our goods in the foreign market are becoming uncompetitive. It will now become more difficult for ordinary Russians to pay mortgages, and other loans, too. “
Natalia Milchakova, Deputy Head of IAC Alpari: “The main reason for the increase in the key rate was the annual inflation, which in July was close to 6.5%, and grew in August. Therefore, the Central Bank has no choice but to raise the rate in order to continue to curb inflation. This decision should have a positive effect on the ruble against the dollar and the euro, but much of the ruble’s reaction will depend on the nature of the accompanying comments from the Central Bank. If the regulator publishes any alarming forecasts for inflation or the state of the economy in the country, then the expected strengthening of the ruble may not occur.
An increase in the key rate will certainly lead to a further increase in interest on loans and deposits, which will be beneficial to bank depositors, but not beneficial to borrowers, including small and medium-sized businesses. Some large banks have already begun in advance, in the summer, to raise deposit rates, and loans have also risen in price, except for mortgages with state support. At the same time, we believe that this increase in the key rate may be the last in the current year. This means that the increase in interest rates on loans and deposits has its limits, which will upset depositors and, conversely, will please (albeit relatively) borrowers and the real sector of the economy. “
Mikhail Vasiliev, chief analyst at Sovcombank: “Following the key rate, other rates in the economy will grow by a comparable amount, including rates on deposits, as well as on consumer and mortgage loans. Therefore, we believe that now is a favorable time for borrowers to attract a new loan or refinance an old one at still low rates.
Rising interest rates on deposits and bonds will increase the attractiveness of savings. We believe that by the end of the year, deposit rates will increase by another 0.5%. Relatively high deposit rates motivate people to save more.
An increase in the ruble interest rate will lead to an inflow of foreign capital into Russian assets, increase demand for rubles and strengthen the Russian currency. This will make imported goods more affordable and will also help reduce inflation. We expect the ruble to remain stable by the end of the year and remain in the range of 72-75 against the dollar and 85-88 against the euro. “
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