MOSCOW, December 18. /TASS/. The Board of Directors of the Bank of Russia may raise the key rate by 200 basis points to 23% per annum at once at its meeting on December 20, experts interviewed by TASS believe.
At its previous meeting the regulator raised the key rate to an all-time high of 21% per annum. On Friday, the rate may hit a fresh all-time high, reaching 23% as a minimum and 25% as a maximum. That said, some experts did not rule out that the rate might remain unchanged in December after the signs of a slowdown of the growth of corporate and retail lending finally emerged. This may positively influence price growth rates and enable the Central Bank to shift to a gradual easing of its monetary policy in the second half of 2025.
Inflation keeps growing
In November, inflation pressure remained high and even intensified, with the weakening of the Russian currency being the main factor behind it as the ruble lost around 10% against the US dollar over the past month, which contributed to an increase in prices for imported goods, including medications, electronics, and cars. Growth of food prices due to a weak harvest was another factor, Alfa Capital’s Alina Poptsova said.
Among factors that hinder the slowdown of price growth are also an extremely undersupplied labor market, as well as elevated inflation expectations of households and businesses, the increased volatility of the ruble, adjustment of tariffs and levies with rates above inflation, Sovcombank added.
Growth of prices in November accelerated to 1.43% from 0.75% month-on-month. Core inflation reached its highest level since April 2022. Annual inflation rose to 8.88% from 8.54%. Weekly data signals inflation acceleration in December as well. The statistics shows that growth of prices by the end of the year may total 9.2-10% (with the Central Bank’s forecast of 8-8.5%), Alfa Capital said.
The fact that the rate’s hike is inevitable in December is also demonstrated by the regulator’s rhetoric. Meanwhile analysts at the Pervaya management company do not rule out an increase in the rate in December up to 24-25%. "Such a decision may have a greater influence on the economy and form more correct expectations of business and markets regarding the future monetary policy," the management company said.
Positive signals emerged
Positive signals of the efficiency of the monetary policy in curbing demand and inflation still exit. In particular, the Bank of Russia registered a slowdown in the growth of corporate lending in November to 0.8% after 2.3% in October. The rates of retail lending have also gone down. "The slowdown of the credit impulse may become a signal for the regulator that the monetary conditions are becoming strict enough, and the Bank of Russia does not need to aggressively increase the rate to 25% at once in December," Poptsova explained.
The tightening of macroprudential regulation and possible limitation of subsidized loans are also expected to facilitate a decline in inflation in the future. "However, this process has not started yet," Pervaya’s Natalia Vashchelyuk added.
What goes next
Experts’ views on the peak of the rate in this cycle vary, though most of them hope that the 23% mark will become the ceiling considering the slowdown of retail and corporate lending. "The slowdown of lending will be also followed by the cooling of domestic demand, as well as inflation slowdown. We expect the growth of prices to slow down to 6.7% by the end of 2025," Sovcombank Chief Analyst Mikhail Vasilyev said. The restricting monetary policy will have a cooling influence on investment demand in coming months as well, he added.
Inflation will start slowing down in coming quarters, which will enable the Bank of Russia in the second half of 2025 to start the cycle of the key rate lowering - to 21% by the end of next year, Sovcombank experts believe.
Renaissance Capital's economists are not confident that the December hike will be the last though. "The current situation with the rate in Russia looks much like the situation on the local debt markets in developing countries in 2021. The main rule in such a situation is that the rate hike is not finished until it is finished, and in the base-case scenario, we expect at least one more increase in the rate by 1 percentage point to 24% in February. Second, in Q1 2025 the price growth rates will remain elevated, while inflation is highly likely to be above the 10% mark year-on-year. Against this background, we believe that it will be quite difficult for the Bank of Russia not to raise the rate once more," experts said.
Finam expects the key rate to peak at 23% and gradually decline starting next summer at best, equaling 18% by the end of 2025. BCS World of Investment projects the rate reaching 13% by the end of next year amid deceleration of economic growth to "near-zero levels due to contraction of the credit impulse and next year’s balanced budget." "Inflation will slow down to 5.2% amid a slowdown of economic activity. That said, growth of tariffs and quite high households’ savings will act as notable proinflation factors, preventing the Central Bank from reaching its inflation target fast," analysts added.
Uralsib Bank believes that the conditions for reducing the key rate will only emerge closer to the end of 2025. Meanwhile the shift to easing the monetary policy may also postpone to 2026.
Market participants' forecasts:
Alfa-Bank - 23%
Astra Asset Management - 23%
BCS World of Investment - 23%
VTB - 23%
Veles Capital - 23%
Russian Standard - 23%
Renaissance Capital - 23%
Sovcombank - 23%
Alfa Capital - 23%
Pervaya Asset Management - 24-25%
Uralsib - 23%
Alfa Forex - 23-25%
Finam - 23%
Tsifra Broker - 21%
Freedom Finance Global - 23%.