For the second time in a row: the Bank of Russia kept its key rate at 7.5% per annum

On Friday, December 16, the Central Bank of Russia kept its key rate at 7.5% per annum for the second time in a row.

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

According to the regulator's assessment, annual inflation has significantly decreased compared to spring peaks.

Consumer price growth rates are at a moderate level, but have picked up slightly in recent weeks due to a number of factors.

In the meantime, inflation expectations of households and businesses have not changed significantly, but remain at an elevated level.

“In November, the annual growth rate of consumer prices was 12% (after 12.6% in October).

According to estimates as of December 12, annual inflation increased to 12.7%, taking into account the indexation of utility tariffs postponed from July 2023,” the Central Bank said in a press release.

According to Bank of Russia specialists, the external conditions for the country remain difficult and significantly limit economic activity.

In particular, regulator experts note the persistence of problems in logistics in many industries.

Meanwhile, operational indicators point to a certain increase in business activity in the fourth quarter, the Central Bank stressed.

Earlier, Russian President Vladimir Putin announced a gradual improvement in the situation in the economy.

According to the head of state, under the conditions of large-scale Western sanctions this year, the country's GDP may decrease by only 2.5%, while inflation should be about 12.2%.

Back in autumn, it was assumed that the economic recession and price growth would be slightly more significant - 2.9 and 12.4%, respectively, and in the spring, experts predicted both values ​​\u200b\u200bto be close to 20%.

Moreover, as the Russian leader noted, there is an obvious downward trend in inflation in the country today.

As a result, already in the first quarter of 2023, the growth rate of consumer prices in annual terms may drop to 5% or even lower, the president did not rule out.

“Unprecedented sanctions aggression has been launched against Russia.

It was aimed at, in a short time, essentially crushing our economy, through the robbery of our foreign exchange reserves, to collapse the national currency - the ruble - and provoke destructive inflation.

This calculation, as we see, as, in fact, everyone sees, did not materialize, ”Putin said.

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Traditionally, a change in monetary policy is considered one of the main tools for controlling inflation.

In the event of a rush in prices, the regulator raises the rate, as a result of which borrowed money becomes more expensive for citizens and businesses, economic activity weakens and price pressure decreases.

If inflation, on the contrary, slows down, the Central Bank may lower the rate to revive business and consumer activity.

In late February, against the background of Western sanctions, the Central Bank raised the rate to a record 20% per annum.

Such an anti-crisis measure was designed to stabilize the situation on the financial market and contain inflation, which had seriously accelerated at that moment.

In response to the actions of the Central Bank, Russian banks began to raise their rates, and already in March, market interest on mortgages 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 normalized and inflation slowed down, the Bank of Russia began to lower the rate and in September brought it to 7.5% per annum.

As a result, in early autumn, the average market interest on mortgages fell to 10.05%, while the yield on bank deposits fell to 6.54%.

However, now these figures have grown somewhat - up to 10.8 and 7.39%, respectively, as evidenced by the materials of the Central Bank and the DOM.RF company.

Although the Central Bank suspended the rate cut cycle, Russian credit institutions still decided to slightly increase the yield on their deposits to attract customers.

However, a further increase in interest on deposits in the near future should not be expected, says Albert Koroev, head of the department of stock market experts at BCS Mir Investments.

“As for consumer loans, the interest on them is regulated not only by the general level of rates, but also by the standards of the Central Bank.

The regulator is now trying to limit the growth in the debt load of citizens by discouraging lending to borrowers with a high debt burden and artificially lengthening the term of loans.

Here, there is no need to wait for rate cuts yet, ”Koroev shared in an interview with RT.

With an eye on inflation

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

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.

According to experts interviewed by RT, in the new year the Bank of Russia may resume easing monetary policy.

Thus, in the opinion of Ruslan Mustaev, Portfolio Manager of Otkrytiye Management Company, in case of confirmation of forecasts of slowing down inflation, the key rate may fall below 7% per annum.

A similar point of view is shared by the portfolio manager of Alfa Capital Management Company Evgeny Zhornist.

“In 2023, the Central Bank may again move to lower the rate.

Inflation is gradually slowing down, while consumer demand and citizens' credit activity remain subdued.

That is, the economy needs additional support, ”Zhornist said in a conversation with RT.

At the same time, further actions of the regulator will largely depend not only on the dynamics of consumer prices, but also on geopolitical factors.

This opinion was shared with RT by the investment strategist of Arikapital Management Company Sergey Suverov.

“In the event of a new serious escalation in Ukraine, it cannot be ruled out that the rate may be raised again.

If everything is relatively calm, the regulator may well reduce it a little.

Thus, the Bank of Russia has room to maneuver, ”the interlocutor of RT explained.

Currency outlook

At the time of the announcement of the results of the meeting of the Board of Directors of the Central Bank, the Russian currency showed mixed dynamics during trading on the Moscow Exchange.

Thus, the dollar rose by 0.47% to 64.66 rubles, while the euro fell by 0.32% to 68.79 rubles.

According to analysts, the preservation of the key rate at the December 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, experts say.

“However, it should be noted that this year there is practically no correlation between the change in the rate and the movement of the exchange rate.

Export-import flows are much more important,” Ruslan Mustaev said.

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

At the same time, the interest of companies in foreign banknotes remains relatively low, since imports have not yet been able to fully recover after the spring collapse.

Against this background, according to the Central Bank, from January to November 2022, the current account surplus of Russia's balance of payments (the difference between the inflow of foreign currency from abroad and its outflow outside the country) reached $225.7 billion. This is approximately 2.1 times more than for the same period in 2021.

At the same time, the state of affairs in Russia's foreign trade has already begun to gradually change.

If in the first quarter of 2022 the surplus of the country's balance of payments account amounted to $69.8 billion, and in the second quarter it increased to $76.7 billion, then in the third quarter the figure, on the contrary, dropped to $51.2 billion.

Such dynamics is largely due to the gradual recovery of imports and a certain decrease in exports in recent months.

According to the experts of the United Nations Conference on Trade and Development (UNCTAD), from July to September, the export of Russian products abroad decreased by 13% compared with April-July.

Meanwhile, deliveries of foreign goods to Russia increased by 26%.

“We see a gradual improvement in import flows that create demand for the currency.

If the reduction in the difference between import and export flows continues, this will contribute to the weakening of the ruble,” Ruslan Mustaev is sure.

According to the analyst, in the foreseeable future, the dollar and euro rates will systematically move towards the level of 70 rubles.

However, according to Albert Koroev, until the end of 2022, the value of the American currency will continue to fluctuate around 64 rubles, and the European one - around 68 rubles.