The Board of Directors of the Central Bank (CB) of the Russian Federation at a meeting on February 16 may decide to maintain the key rate at the current level of 16%, experts interviewed by Izvestia expressed their opinion.
“There is reason to believe that at the next meeting of the Board of Directors of the Bank of Russia, scheduled for February 16, we will see the key rate maintained at the current value of 16%,” said Pavel Paevsky, senior analyst at RSHB Asset Management.
He added that the inflation dynamics in the country looks moderate, but it is too early to say that this is a stable trend. In addition, the expert drew attention to the fact that at the end of January, “inFOM” published survey data on inflation expectations of the population, which showed their decline for the first time since October 2023.
“We also note the slowdown in retail lending. According to the Bank of Russia, the portfolio of loans to individuals in December 2023 grew by a symbolic 0.2% month-on-month versus 1.6% in November. The slowdown in December was due to both an increase in the key rate and due to stricter requirements for issuing retail loans. Thus, the tightening of monetary policy has contributed to a cooling of consumer demand, and consumer activity is slowing down. But data for December alone is also not enough,” Paevsky explained.
BitRiver financial analyst Vladislav Antonov also suggested that the key rate will remain at the current level.
“Bank rates on deposits and loans will remain unchanged for now. One of the main goals of the Central Bank in the process of tightening monetary conditions was to limit consumer activity through inflated rates. And so it happened. However, until the trend takes hold, there is no real point in changing the rate. If the rate remains unchanged, the ruble will ignore such news. The most likely time for a rate cut is May or June,” Antonov said.
In turn, the head of the directorate for working with fixed income instruments at Alfa Capital Management Company, Evgeniy Zhornist, expressed the opinion that with a high degree of probability the regulator will begin to ease monetary policy by the end of the second quarter of 2024, if price shocks do not occur, and as a result, by the end of the year the rate could reach approximately 12%.
“High rates have a negative impact on business activity, primarily in the consumer segment, which can lead to distortions, so it is dangerous to hold them for a long time. Central Bank Chairman Elvira Nabiullina also noted in a January interview that the regulator sees room for a rate cut, but sometime in the second half of the year. To do this, the Central Bank must make sure that the trend towards lower inflation is sustainable,” the expert noted.
Speaking about the significance for the market of the possible preservation of the key rate, Zhornist suggested that it is unlikely that there will be any impact on the market from this side.
“In general, the OFZ (federal loan bonds) market has been under pressure for some time: long OFZs are trading with a yield of 12.15–12.45%. Perhaps some investors still consider the current inflation to be too high, or were disappointed by the regulator’s words that the rate will be reduced only in the second half of the year,” he clarified.
At the same time, Zhornist drew attention to the fact that the bond market usually begins to grow ahead of the curve, without waiting for the actual reduction of the key rate, so investors can begin to build bond portfolios at the present time.
“Conservative investors can use high-quality corporate bonds with a fixed coupon and a duration of 1.5 years for this purpose. Riskier investors are long-term OFZs (with a duration of seven years): in the event of a significant reduction in the key rate, they will be overvalued the most, but the volatility in this segment still remains high,” the expert concluded.
Earlier, on December 15, the Central Bank of the Russian Federation raised the key rate by 1 percentage point. — from 15 to 16% per annum. Then the regulator noted that the inflation expectations of the population and the price expectations of enterprises had increased, and therefore the return of inflation to the target in 2024 and its further stabilization around 4% implies a long period of maintaining tight monetary conditions in the economy.
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