Russian Central Bank Anticipates Rate Hike

By Elena Fabrichnaya and Gleb Bryanski
MOSCOW (Reuters) – The Russian central bank is expected to increase its benchmark interest rate by 200 basis points to 23% during its board meeting on December 20, following a significant drop in the rouble's value in November, according to a Reuters poll.

The rouble has depreciated by approximately 15% against the dollar, attributed to panic buying of foreign currency amidst new U.S. sanctions targeting Russian banks, including Gazprombank, which is vital for energy trade payments with Europe.

Analysts initially estimated the rouble would stabilize at a trading median of 100 to the U.S. dollar within a year, but this assessment has changed, prompting the central bank's decision amidst rising inflation expectations.

Mikhail Vasilyev, Sovkombank's chief analyst, stated, "We expect that the central bank will raise the key rate by 200 bps to 23% at the Dec. 20 meeting and maintain a firm signal regarding further potential rate hikes."

Out of ten analysts, all forecast the increase to 23%, with one suggesting a rise to 22% and another predicting 25%. The rouble traded at 106 to the dollar on Tuesday and is projected to strengthen to a median of 103.2 by year-end, stabilizing above 100 throughout the following year.

Inflation is anticipated to reach 9% in 2024, surpassing the central bank’s projection of 8.5%, eventually decreasing to 6.3% due to monetary tightening measures. Dmitry Polevoy from Astra Asset Management noted that the rouble's collapse could adjust the inflation forecast for 2025 from 5-5.5% to 6-7%, suggesting that earlier intervention by the central bank might have improved the exchange rate scenario.

In response to the rouble's decline, the central bank halted foreign currency purchases last week but declined to undertake more aggressive interventions, sticking to its floating exchange rate policy.

Economic growth forecasts remain steady, with expectations for GDP growth at 3.8% in 2024, slightly below the official forecast of 3.9%. Growth is anticipated to decelerate to 1.8% the following year.