The Central Bank of Russia (CBR) is expected to keep hiking the key interest rate from the current 15% at the upcoming policy board meeting on December 15, according to analyst surveys by Reuters, Forbes, Vedomosti daily and RBC business portal.

As followed by bne IntelliNews, the CBR resolved to hike the key interest rate by 200 basis points to 15% at the policy meeting of October 27, continuing a hawkish monetary policy amid inflation defying its 2023 target. (chart)

This made the fourth consecutive key interest rate increase. At the September 15 policy meeting the CBR raised the key rate from 12% to 13%, following an emergency hike by 350 basis points in August as the ruble weakened. 

October's hike of 200bp is much more aggressive than the 100bp hike that was widely expected by the market. But the CBR was forced to catch-up with the actual inflation dynamics for the second meeting in a row. While in September the regulator increased the 2023 annual inflation guidance to 6%-7%, after October’s meeting it increased the forecast again to 7-7.5%.

In November high inflation persists and has already reached the 7.5% guidance set by the CBR for the full year, while the labour market remains overheated and fiscal spending remains elevated. 

Amid this background the regulator will hike the key rate again by 100 basis points to 16%, 22 out of 31 analysts surveyed by RBC, 16 out of 23 by Vedomosti, 23 out of 27 by Reuters, and 8 out of 10 by Forbes believe. Some analysts also forecast another aggressive hike of 200bp. 

Some analysts, such as Alexander Isakov of Bloomberg Economics and Denis Popov of PromSvyazBank, believe that the CBR will end the tight monetary policy cycle with another hike on December 15, but will not cut the rate until economic activity and demand remain overheated by credit growth.

Previously the Governor of the CBR Elvira Nabiullina already warned that should key pro-inflationary factors persist, the central bank will be ready to hike the key interest rate.

Renaissance Capital, however, believes that after the expected hike on December 15, the tone of CBR’s guidance may be softened, indicating the likely end of the monetary tightening cycle. The regulator has most recently noted an increase in saving activity and a slowdown in retail lending, reflecting the effect of the rate hikes already made previously. 

“[The year] 2024 is likely to be a period of finding a compromise between the risks to inflation and economic activity in the Russian economy. We are leaning towards the scenario that a slowdown in lending and normalisation of price dynamics will allow the CBR to lower the key rate below 10% as early as the end of 2024,” RenCap analysts believe.