Up to 6.5% per annum: the Central Bank raised its key rate for the fourth time in a row

On Friday, July 23, the Board of Directors of the Bank of Russia raised the key rate by one percentage point at once - to 6.5% per annum.

The increase was the sharpest since December 2014.

The leadership of the Central Bank explained its actions by the need to contain inflation.

As noted in the Central Bank, in the second quarter of 2021, the Russian economy returned to the level before the pandemic.

Nevertheless, consumer demand in the country is growing rapidly, and enterprises have not yet managed to increase the supply of goods and services to the required level.

This state of affairs leads to a noticeable increase in prices.

“Taking into account high inflationary expectations, this has significantly shifted the balance of risks for inflation towards pro-inflationary ones and may lead to a longer deviation of inflation upwards from the target.

The decision on the key rate is aimed at limiting this risk and bringing inflation back to 4%, ”the regulator said in a press release.

According to the Bank of Russia estimates, in June 2021, consumer prices in the country increased by 6.5% compared to the same period in 2020.

The achieved level of annual inflation turned out to be the maximum in almost five years.

At the same time, the figure did not change by mid-July, the Central Bank stressed.

Note that raising the key rate is one of the traditional economic instruments for slowing inflation.

So, the actions of the regulator lead to an increase in interest on all categories of loans.

As a result, the growth of consumer lending is slowing down, which helps to contain demand.

Nikita Maslennikov, head of the Finance and Economics department at the Institute of Contemporary Development, told RT about this.

“When rates rise, people start to consume more rationally.

This, in turn, has a restraining effect on inflationary expectations of citizens, ”the specialist added.

According to the Central Bank, by the end of 2021, inflation in Russia will slow down to 5.7-6.2%.

In 2022, taking into account the policy pursued by the regulator, the value may drop 4-4.5% and in the future will be close to 4%, the Central Bank predicts.

The next meeting of the Board of Directors of the Central Bank is scheduled for September 10.

At the same time, during the first autumn meeting, the top management of the regulator will continue to focus on the inflation rate in terms of changing the key rate.

The chairman of the Central Bank Elvira Nabiullina said this on Friday during a press conference.

“According to our revised forecast, next year the average key rate will be 6-7% per annum.

In the future, as inflation expectations decrease and inflation slows down, the rate will return to its long-term neutral range.

We continue to estimate this range at 5-6% with inflation for the purposes of the Bank of Russia close to 4%, ”added Nabiullina.

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It is noteworthy that in addition to the official statements and forecasts of the Central Bank, experts again drew attention to the brooch of Elvira Nabiullina.

The accessory is traditionally perceived as a kind of signal from the head of the Central Bank.

“Today's Nabiullina brooch in the shape of a cloud with raindrops is probably a hint that the actions of the Central Bank should prevent an inflationary thunderstorm.

Inflation can be compared to a shower that washes everything away.

Thus, the head of the Central Bank can signal us about the presence of risks to which we need to pay attention.

Meanwhile, the decision taken today may allow the thunderstorm not to take place, ”suggested Nikita Maslennikov.

Percentage chain

Recall that in 2020, to support the economy and business during a pandemic, the Central Bank confidently reduced the key rate and lowered it from 6.25 to 4.25% per annum - the minimum level for the entire post-Soviet period.

The actions of the regulator led to a noticeable drop in interest rates on loans and bank deposits in the country.

So, the average mortgage rate at a certain moment dropped to 7.23% per annum, and the maximum rate on deposits in the ten largest banks - up to 4.3% per annum.

However, both indicators began to gradually grow as the Central Bank's key rate increased from the beginning of 2021.

So, today the average interest on housing loans in Russia has already risen to 7.3%, and on bank deposits - up to 5.3%.

As Natalya Milchakova, deputy head of the Alpari information and analytical center, suggested in a conversation with RT, by the end of 2021 the average mortgage rate could grow to 8-8.5% per annum.

However, interest rates will mainly rise in the secondary housing market, says Igor Galaktionov, an expert at BCS World of Investments.

“As for the primary real estate market, in this segment the rates may not change so significantly, since the extension of the preferential mortgage program will keep the cost of loans for housing under construction low.

In turn, deposit rates may continue to grow and approach 6% at the end of the year, "Galaktionov explained in an interview with RT.

Currency optimism

According to analysts interviewed by RT, investors highly appreciated the likelihood of a significant increase in the key rate at the July meeting.

Thus, market participants in their actions took into account the decision of the Bank of Russia in advance, so there was no serious reaction from the ruble.

At the time of the announcement of the results of the meeting of the Board of Directors of the Central Bank, the Russian currency was moderately strengthening during trading on the Moscow Exchange.

Thus, the dollar rate fell by 0.2% - to 73.52 rubles, and the euro rate - by 0.3%, to 86.49 rubles.

The official exchange rate of the Central Bank on July 24 was set at 73.77 rubles per dollar and 88.85 rubles per euro.

Meanwhile, in the long term, the actions of the Bank of Russia may play in favor of strengthening the national currency, experts say.

Thus, an increase in the key rate traditionally increases the attractiveness of ruble-denominated assets and, in particular, federal loan bonds (OFZ).

As a result, the expected inflow of investments into the Russian financial market should contribute to the appreciation of the ruble.

“The increase in interest rates is favorable for the state's currency, and the ruble is no exception in this regard.

Until the end of the summer, we expect that the dollar exchange rate will fluctuate in the range of 72.5-74.5 rubles, and the euro rate - around 86-89 rubles, ”Natalya Milchakova believes.

According to Igor Galaktionov, the dynamics of the Russian currency will also depend on geopolitical factors and oil prices. Meanwhile, the expert does not exclude that if the current conditions persist, by the end of 2021 the dollar exchange rate may drop to 68-69 rubles.