For the first time since 2017: The Bank of Russia raised the key rate to 8.5% per annum

On Friday, December 17, the Board of Directors of the Bank of Russia, following the results of the last meeting in 2021, raised the key rate by one percentage point at once - to 8.5% per annum.

The value was the highest since October 2017.

Note that the Central Bank raised the interest rate for the seventh time in a row.

The Central Bank explained this decision by the need to curb inflation.

According to the regulator, in November 2021, consumer prices for goods and services in the country increased by an average of 8.4% compared to the same period in 2020.

This level of annual inflation turned out to be a record over the past six years.

Prices are influenced by both temporary and persistent factors.

This was stated by the chairman of the Central Bank Elvira Nabiullina during a press conference.

“The temporary ones include a shift in the timing of harvesting, and a significant increase in prices for New Year's trips abroad, and a continuing shortage in the car market due to problems with components, and a number of other restrictions on the supply side.

But even if we take out of the brackets the prices for goods and services that have been rapidly increasing this year, there will remain a stable part of inflation, which is noticeably higher than our goal.

And this is due to the fact that the growth in demand continues to outstrip the possibilities of expanding supply, ”explained Nabiullina.

It is noteworthy that since the beginning of winter, the rate of price growth in Russia began to gradually slow down, and by mid-December, annual inflation dropped to 8.1%.

At the same time, the indicator is still twice the target level of the Bank of Russia (4%).

Moreover, experts from the Central Bank note a record growth in inflationary expectations of the population.

According to the latest estimates of the regulator, in December the corresponding value renewed the five-year high and approached 15%.

“Such dynamics suggests that Russians are afraid of an even greater rise in prices, so they prefer not to postpone large purchases and make them now.

This additionally leads to an increase in demand and, as a result, to an increase in inflationary risks, "Nikita Maslennikov, head of the Finance and Economics department at the Institute of Contemporary Development, explained in an interview with RT.

Meanwhile, raising the key rate is one of the key economic instruments to combat price increases.

Artyom Deev, head of the analytical department of AMarkets, spoke about this in an interview with RT.

“Against the background of the regulator's actions, banks are raising their interest rates on loans for citizens and businesses, as a result of which economic activity in the country is reduced.

At the same time, interest on bank deposits is growing, and it becomes more profitable for the population to keep funds in deposits.

Thus, there is a cooling of consumer demand, and the amount of money in the economy decreases.

This is what allows us to put pressure on inflation, "- explained Deev.

Plans for the future

The next meeting of the Board of Directors of the Bank of Russia is scheduled for February 11.

At the same time, during their first meeting in 2022, the top management of the regulator may again raise the rate, Elvira Nabiullina did not rule out.

“Most likely, we have not yet reached the toughness of monetary conditions that is needed to bring inflation back to target next year.

Therefore, we admit the possibility of an additional rate hike at the next meetings.

But the situation may change, "- said the head of the Central Bank.

• © Press Service of the Central Bank of the Russian Federation

In addition to the official statements by Nabiullina, experts again drew attention to the brooch of the Chairman of the Central Bank.

Experts perceive the accessory as a kind of non-verbal signal from the head of the regulator.

“Perhaps the Nutcracker brooch by Nabiullina is a metaphorical signal to the market that it is too early to relax.

Fighting inflation like the Rat King is challenging and challenging.

However, the Central Bank, like the fairytale hero, has all the necessary tools for this, ”suggested Nikita Maslennikov.

According to the forecast of Elvira Nabiullina, at the end of 2021, inflation in Russia will be around 7.9-8%.

At the same time, by the end of 2022, the Central Bank expects to reach a price growth rate of around 4-4.5%.

Chain reaction

Recall that back in 2020, against the backdrop of the coronavirus pandemic, the Bank of Russia actively lowered its key rate to stimulate the economy and business activity.

So, the regulator lowered it from 6.25 to 4.25% per annum - the minimum level for the entire post-Soviet period.

However, since March 2021, to slow inflation, the Central Bank began to raise the rate.

As a result of the actions of the Central Bank since the beginning of this year, the maximum interest on deposits in the ten largest banks has grown from 4.49 to 7.38% per annum.

At the same time, the average mortgage rate in Russia rose from 7.36 to 7.7% per annum.

Taking into account the regulator's plans to continue tightening monetary policy, Russian banks will continue to raise interest rates on loans and deposits.

This point of view in a conversation with RT was expressed by Anna Bodrova, an analyst at the Alpari information and analytical center.

“In the near future, interest rates on loans may rise by another 0.2-0.5 percentage points.

Interest on deposits will also grow, but a little slower, ”Bodrova said.

Optimism for the ruble

Investors highly rated the likelihood of a key rate hike in December, analysts said.

Market players in their actions took into account this scenario in advance, so the decision of the Central Bank had practically no effect on the dynamics of 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 decreased by 0.26% - to 73.56 rubles, and the euro rate - by 0.29%, to 83.33 rubles.

Meanwhile, in the long term, the actions of the regulator should support the national currency, analysts believe.

The increase in the Central Bank's interest rate makes investing in ruble-denominated assets more attractive to investors.

In particular, due to the actions of the regulator, the yield of federal loan bonds (OFZ) increases.

As a result, an additional inflow of investments into the OFZ market has a positive effect on the dynamics of the ruble.

According to Anna Bodrova, if the current conditions are maintained until the end of 2021, the dollar exchange rate will remain in the range of 72.5-74 rubles.

Artyom Deev adheres to a similar assessment.

According to the expert, the tax period should become an additional positive for the ruble.

“Next week, the demand for rubles from exporting companies will grow, which will have to pay taxes.

Against this background, the rates of the dollar and the euro may fall by another 1-1.2 rubles.

At the same time, oil quotes will also be stable, and the external geopolitical rhetoric is relatively calm.

If there are no negative events, then by the end of the year nothing serious will happen to the ruble, ”concluded Deev.