Interest break: the Bank of Russia kept the key rate at 7.5% per annum

On Friday, October 28, the Central Bank of Russia kept its key rate at 7.5% per annum.

This decision was made by the Board of Directors of the Central Bank following the results of the second autumn meeting in 2022.

According to the regulator, consumer price growth in Russia remains low and contributes to a further slowdown in annual inflation.

So, in September, the corresponding indicator fell from 14.3 to 13.7%, and as of October 21, the value decreased to 12.9%.

At the same time, inflation expectations of households and businesses are at an elevated level and have grown somewhat compared to the summer months.

“Partial mobilization will be a deterrent for the dynamics of consumer demand and inflation over the next few months.

However, in the future, its effects will be pro-inflationary due to increased restrictions on the supply side, ”the Central Bank said in a press release.

As noted in the Bank of Russia, business and consumer sentiment slightly worsened in September.

Nevertheless, the overall economic activity in the country throughout the third quarter was better than expected.

Thus, more and more enterprises are adjusting to work in conditions of external trade and financial restrictions.

Against this background, the Central Bank has significantly improved its macroeconomic forecast.

It should be noted that back in July, the Central Bank expected a fall in Russia's GDP in 2022 by 4-6% and a slowdown in inflation to 12-15%.

However, now the regulator estimates the expected economic recession at the end of the current year at only 3-3.5%, and consumer price growth at 12-13%.

Russian President Vladimir Putin voiced similar assessments the day before during his speech at the plenary session of the Valdai International Discussion Club.

As the head of state said, this year the volume of the country's GDP may decrease by 2.8-2.9%, and inflation should be about 12%.

According to the Russian leader, the tough sanctions policy of the West against Moscow ultimately failed.

Thus, unfriendly countries initially expected to achieve a collapse of the national economy, but "this blitzkrieg did not take place."

“Nothing has fallen apart, and the fundamental foundations for the existence of the Russian economy and the Russian Federation itself turned out to be much stronger than anyone thought about it - even, maybe, ourselves ... There is still a lot to be done to ensure that new supply chains - and for imports, and for exports - to create, reduce the costs associated with this.

But in general, the peak of difficulties has been passed, the Russian economy has adapted,” Putin stressed.

• RIA News

• © Pavel Byrkin

The Central Bank did not change the key rate after continuously reducing it for six months.

According to experts, against the backdrop of decelerating inflation, the Central Bank softened its monetary policy to reduce the cost of loans, revive activity and increase the circulation of money in the economy.

Now the Bank of Russia needs to analyze how the situation has changed, so the regulator has decided to hold off on changing the rate for the time being, analysts say.

“At the moment, it is rather difficult to assess the balance of inflationary and disinflationary risks.

A pause in lowering the key rate is just what is needed in order to see how the economy adjusts to the current situation, ”explained Ruslan Mustaev, portfolio manager at Otkritie Management Company, in an interview with RT.

Recall that at the end of February the Bank of Russia sharply raised its key rate to a record 20% per annum.

The regulator took this decision as one of the anti-crisis measures in the face of large-scale Western sanctions against Moscow.

The Central Bank's initiative was designed to stabilize the situation on the financial market and contain inflation, which had seriously accelerated at that moment.

In response to the sharp tightening of monetary policy, Russian banks began to actively raise their rates.

So, already in March, market interest on mortgages in the country rose to 23-24%, and the yield on deposits reached an average of 20.51% per annum.

From mid-spring, as the situation in the economy stabilized and inflation slowed down, the Central Bank began to systematically lower the key rate and in September brought it to 7.5% per annum.

The value was the lowest since December 2021.

As a result, already at the beginning of autumn, the average market interest on mortgages in Russia decreased to 10.05%, while the profitability of bank deposits fell to 6.54%.

However, today these figures have increased slightly - up to 10.63 and 6.79%, respectively, as evidenced by the materials of the Central Bank and the DOM.RF company.

“Since the end of September, banks have slightly increased interest on deposits, as they were afraid of an outflow of customer funds from accounts.

However, there was no serious withdrawal of money, so the potential for further growth in deposit rates is limited.

Interest on loans also increased because banks began to pledge increased risks, but in the near future, most likely, there will be no new changes, ”Yevgeny Zhornist, portfolio manager at Alfa Capital Management Company, told RT.

• RIA News

• © Alexey Sukhorukov

The next meeting of the Board of Directors of the Central Bank is scheduled for December 16.

According to a press release from the regulator, in the future the Central Bank will decide on the key rate depending on the dynamics of inflation, the process of economic restructuring, as well as an assessment of internal and external risks.

As Vasily Karpunin, head of the information and analytical content department at BCS World of Investments, suggested in a conversation with RT, until the end of 2022, the key rate is likely to remain at around 7.5% per annum.

At the same time, Ruslan Mustaev did not rule out that the indicator could still change depending on the dynamics of inflation.

“If the risks in favor of rising inflation prevail, then we may see the rate remain unchanged or even increase.

If signs of a further slowdown in inflation come to the fore, then another rate cut is quite possible,” Mustaev explained.

Without further hesitation

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 slightly strengthening

during trading on the Moscow Exchange.

Yes, the dollar has fallen.

by 0.14%, to 61.64 rubles, and the euro exchange rate - by 0.69%, to 61.28 rubles.

According to experts, the preservation of the key rate at the October meeting was expected.

Investors in their actions took into account this scenario in advance, so the decision of the Central Bank did not have a serious impact on the dynamics of the ruble, analysts emphasize.

“In general, the key rate is no longer the determining driver for the ruble.

Now this factor has faded into the background.

Much more important are the trade and balance of payments, or rather, the supply and demand for currencies on the part of importers and exporters, ”explained Vasily Karpunin.

• Gettyimages.ru

It should be noted that today, dollars and euros received from exports continue to flow into Russia in significant volumes.

At the same time, business demand for these currencies is still low, as imports have not yet recovered to pre-crisis levels.

The observed imbalance supports the ruble, experts say.

“In the event of a more confident recovery in the flow of imported goods to Russia, the dollar and euro rates may well rise to the range of 70-75 rubles over the next few months.

If the balance of exports and imports remains at the current level, then we do not expect any special movements in the exchange rates of these currencies,” Ruslan Mustaev said.

According to BitRiver financial analyst Vladislav Antonov, in early November, the dollar and euro rates may briefly rise to 65 rubles due to the end of the tax period in Russia.

However, there are no prerequisites for a more serious growth in the coming weeks, the analyst believes.

“The ruble has developed a strong immunity to the negative external background.

In this regard, the dollar and euro rates may remain in the range of 59-65 rubles until the end of November, ”concluded the interlocutor of RT.