The Central Bank of Russia for the fourth time in a row kept the key rate at 7.5% per annum. This decision was made by the Board of Directors of the Central Bank following a meeting on Friday, March 17.
According to the regulator, in February, the annual inflation rate in the country fell to 11% compared with January's 11.8%. At the same time, as calculated in the Ministry of Economic Development, by mid-March, consumer price growth slowed to 7.65% in annual terms.
"The current growth rate of prices remains moderate, including in terms of sustainable components. Inflation expectations of the population have significantly decreased, but remain at an elevated level, as well as the price expectations of enterprises, "the Central Bank said in a press release.
At the same time, according to the regulator, in the first quarter of 2023, the recovery of economic activity in Russia continued. Despite some deterioration in external conditions, business sentiment remains optimistic as a result of expanding domestic demand, the central bank added.
On the eve of the improvement of the situation in the economy, Russian President Vladimir Putin also said. According to him, at the moment, positive trends are "gaining momentum" and already in the second quarter of 2023, the country's GDP may show a "significant increase" compared to the same period in 2022.
In addition, in April, the growth rate of retail trade in Russia can grow to 5% due to the revival of domestic demand, Putin added. As the head of state explained, the consumer activity of citizens is increasing against the background of the stability of the labor market, an increase in salaries and incomes of citizens, as well as a decrease in inflation.
"It is expected that by the end of March inflation will be less than 4%. Different experts have different opinions... Someone says - 4%, someone says - less, someone says - 5%. In that vein. But it is clear that this will be target inflation," the president stressed.
- kremlin.ru
- © Sergey Bobylev/TASS
The preservation of the level of the key rate at the March meeting was largely expected, said Sergey Suverov, investment strategist at Aricapital Management Company. According to the expert, to date, the Central Bank has no serious grounds for revising its monetary policy (DCP).
"Although inflation is now slowing down, recently we have seen some weakening of the ruble, which again created the risk of accelerating price growth. In this regard, the rate cut so far seems inappropriate. On the other hand, it is also not worth raising the rate now, because in this case the lending market will suffer, which will be a negative factor for some industries, "Suverov explained.
In Search of Balance
Recall that traditionally the change in the Monetary Policy is considered one of the main tools of the Central Bank to control inflation. In the event of a rush increase 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 the spring of 2022, against the backdrop of unprecedented Western sanctions against Moscow, inflation in Russia began to rise sharply and at one point approached 18% - for the first time in the last 20 years. As an anti-crisis measure, the Central Bank more than doubled the key rate (from 9.5% to a record 20% per annum), which after a while made it possible to slow down the growth of prices.
So, in the summer, inflation in the country fell below 15%, and by the end of the year it was about 11.9% and turned out to be even better than the forecasts of the authorities. As price pressure decreased, the Central Bank began to gradually lower the key rate. In June, the regulator returned it to the pre-sanctions level of 9.5%, and in September it reduced it to 7.5% per annum and has continued to hold it at this mark since then.
The next meeting of the Board of Directors of the Central Bank is scheduled for April 28. According to the press release of the regulator, in the future the Central Bank will make a decision on the key rate, taking into account the dynamics of inflation, the process of structural adjustment of the economy, as well as the assessment of internal and external risks.
"With the strengthening of proinflationary risks, the Bank of Russia will assess the feasibility of raising the key rate at the next meetings. According to the forecast of the Bank of Russia, taking into account the ongoing monetary policy, annual inflation will be 5-7% in 2023 and will return to 4% in 2024," the Central Bank said.
According to Denis Popov, chief analyst at Promsvyazbank, there is a possibility that against the background of a further revival of consumer demand and a moderate weakening of the ruble, inflation will again begin to gradually accelerate in the second half of the year. This, in turn, may affect the actions of the Central Bank, the expert believes.
"According to our estimates, by the end of March, the annual inflation rate will indeed drop to 4%, and in the second quarter it may go even lower. Nevertheless, the risk of accelerating inflation in the second half of the year is real and, according to our forecast, by the end of 2023 it will be about 7%. So we expect at least the key rate to remain at the current level of 7.5% until the end of the year, "Popov said in a comment to RT.
As Albert Koroev, head of the department of stock market experts at BCS World of Investments, suggested in an interview with RT, if necessary, the Central Bank may again move to tighten its monetary policy. However, according to the expert, by the end of 2023, the key rate is unlikely to rise above 8%.
Without too much 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 slightly fell in price during trading on the Moscow Exchange. Thus, the dollar rose by 0.35%, to 76.67 rubles, the euro - by 0.3%, to 81.42 rubles, and the yuan - by 0.18%, to 11.11 rubles.
Usually, a change in the monetary policy of the Central Bank affects the attractiveness of ruble assets. For example, in the case of a reduction in the key rate, the yield of federal loan bonds (OFZ) decreases. As a result, it becomes less profitable for investors to invest in these securities - and the outflow of capital from the OFZ market increases, which negatively affects the ruble. The reverse situation, as a rule, can be observed if the Central Bank raises the rate.
"Thus, in order for the ruble to react to the decision of the Central Bank, the rate should be raised or lowered, but this did not happen. The national currency now depends more on the geopolitical situation and the state of the trade balance than on the actions of the Central Bank," said Sergey Suverov.
In addition, as BitRiver financial analyst Vladislav Antonov told RT, in recent days, a certain pressure on the Russian currency has been exerted by a decrease in world oil prices. In these conditions, the expert does not exclude that by the end of March the dollar rate may rise to 80 rubles, the euro rate - up to 83 rubles, and the yuan rate - up to 11.3 rubles. Nevertheless, according to the forecast of Albert Koroev, throughout the spring, the values may drop to 74, 78 and 10.7 rubles, respectively.