The Central Bank of the Russian Federation will raise the key interest rate to 18% per annum on July 26: consensus forecast

Consensus forecast: 18%

• “Presidential Academy” – 18%
• Institute “Development Center” Higher School of Economics of the National Research University – 18%
• “BCS World of Investments” – 17%
• SberCIB Investment Research: 18%
• IC “Finam” – 18%
• “SDM-Bank” – 19%
• “Solid Runner” – 18%
• VTB – 18%
• Alfa Bank – 18%

The rate is rising: loans and inflation

Inflation rates fell slightly in the first week of July and if no new evidence emerges before July 26, this will be the baseline scenario, with a range from the very possible 17% to the unlikely 20%, RB.RU. said. Candidate of Economic Sciences, Associate Professor of the Andrey Chelyuskin Presidential Academy.

“The specific value of the key interest rate in this case is not as important as its coincidence with the expectations of the financial sector, so when making a decision, the Bank of Russia also takes into account the consensus of market participants. Significant deviations from forecasts can only be observed in times of excessive turbulence, when it is necessary to deal with exceptional economic circumstances. This is quite logical: making an unexpected decision in a relatively calm environment can only add fuel to the fire, add volatility, which cannot be included in the plans of the Bank of Russia, one of whose main tasks is to ensure the stability of the domestic financial market,” says Chelyuskin.

Expert of the Institute of the Development Center of the Higher School of Economics of the Igor Safonov National Research University He adds that the size of the rate will be affected by a combination of factors in the form of the current rates of price growth, which accelerated according to HSE estimates in June, worsening inflation expectations, a new round of wage increases and demand for labor resources. All these factors dictate the need for further tightening of monetary conditions, since in their current configuration, the return of inflation to the target, according to HSE calculations, will be possible only in 2026, the RB.RU expert said.

“Therefore, we assume that the Bank of Russia will not limit itself to half-measures, including raising the target rate to 17% per annum, and will immediately raise the rate by 2 percentage points as a neutral signal about future intentions,” says Safonov.

Ilya Fedorov, Chief Economist at BCS World of InvestmentsHe believes that raising the rate to 18-20% or more will be dangerous by “squeezing the economy” against the background of the still lingering effects of tightening monetary conditions and the abolition of preferential lending.

“A rate increase to 20% or more will be justified if nominal wage growth remains in the 15-20% range,” the expert believes.

According to Fedorov, by autumn there will be sufficient data available to enable the Bank of Russia to determine the optimal level of monetary policy rigidity.

“Therefore, raising the rate to 17% would be the ideal solution before the long break between meetings,” Fedorov said.

Deputy Chairman of the Board of Directors, Head of Treasury of SDM-Bank Eduard Lushin The Russian Central Bank Board of Directors believes that it will raise the interest rate to 19% in an attempt to anticipate market expectations for tightening financial conditions.

“The economy is overheated, lending is not decreasing, the first cancellations of preferential mortgage programs occurred only on July 1, and between the last meetings of the Central Bank a number of stricter restrictions on consumer lending were also introduced,” says Lushin. The expert does not rule out an increase in deposit rates, which could soon approach 20%.

Rising inflation

Safonov from the Development Institute believes that at the upcoming meeting, in addition to the rate, the regulator’s forecasts for inflation and the average value of the key rate for the entire forecast horizon will also be raised.

“Under these conditions, inflation will be 7.4% at the end of 2024 and will fall to the target level of 4% per year at the end of 2025,” the expert said.

Igor Rapokhin, Senior Debt Market Strategist at SberCIB Investment Research The central bank said that the sharp increase in the key rate to 18% was due to the fact that inflation was significantly higher than the Bank of Russia’s forecast.

“For this reason, the Central Bank will raise its inflation forecast for this year, most likely by 1.5-2 percentage points. Sufficient preconditions for its slowdown in terms of credit, which continues to grow at a high pace (comparable to 2021, when the average official rate was around 6%), have not yet been created. In addition, since the June meeting, additional inflation risks associated with a decrease in imports have emerged due to the increased complexity of calculations,” said an expert from SberCIB Investment Research.

What will happen to the rate next?

At its meeting on July 26, the Bank of Russia will also discuss the need to maintain tight monetary conditions for a longer period. Against this background, forecasts for the average interest rate for the coming years will increase, for example to 14-16% by 2025, from the previous 10-12%, says Igor Rapokhin, senior strategist at SberCIB Investment.

Rodion Latypov, chief economist of VTB Group He says that already in the forecast for 2025 we can see the average key at the level of 13-16% instead of the previous 10-12%, and in the forecast for 2026 – 10-12% instead of the previous 6-7%. Thus, changes in the indications of the future trajectory will be more significant, the expert believes.

Chief Bond Analyst at Solid Broker Maxim Pleshkov He added that the key cycle of rate cuts in the baseline scenario is postponed until 2025. Pleshkov recalled the words of the Central Bank Chairwoman Elvira Nabiullina that “the topic of discussion at the meeting of the Bank of Russia on July 26 will be the step of raising the official interest rate.”

According to Yaroslav Kabakov, director of strategy at Finam Investment Companythe rate hike will most likely be accompanied by tough rhetoric on possible additional measures to combat inflation. However, if inflation continues to rise and measures to limit lending prove insufficient, the regulator could consider raising the rate further to 20% by the end of 2024.

Kabakov is confident that raising the central bank’s key rate to 18% or higher will have a significant impact on small businesses in Russia.

In such an environment, small businesses will need to review their financial strategies, improve operational efficiency and actively seek alternative sources of financing to remain sustainable and competitive in the market. For example, companies may consider attracting investments through crowdfunding or looking for strategic partners to jointly finance projects, Kabakov concluded.

Head of sales department of investment business “T-Investments” Georgy Vardanyan He stressed that the Central Bank’s board of directors makes a decision on the eve of the meeting and its plans can change.

“Therefore, even if analysts now have a consensus on the decision, everything can change very quickly,” says Georgy Vardanyan (the author’s opinion may differ from the company’s opinion).

“The regulator is awaiting new data on inflation, actively monitoring inflation expectations of the population and monitoring the situation on the real estate market (the abolition of preferential mortgages can be of great help in the fight against inflation). I think that the rate will increase. In the current conditions, this is the most correct step, but I will not dare to predict the magnitude of the increase: there is still time before the meeting and positive inflation statistics can confuse the cards,” the expert said.

It was reported earlier that the majority of private investors in Russia (29%) expect an increase in the key rate from the current 16% to 18% in July 2024. Against the background of rate expectations, private investors are actively investing in money market funds, bonds and floating rate bonds (floaters), according to the results of a survey by SberInvestments.

This message contains expert opinions received by RB.RU for informational purposes only and does not constitute a recommendation to buy or sell securities or to make (or not to make) any trading or other decisions. RB.RU is not responsible for the content of the message and the consequences of its use.