At the next meeting of the Central Bank (CB) of the Russian Federation in February 2023, options will probably be considered to maintain the key rate at the current level (7.5%) or slightly increase it, Olga Belenkaya, head of the macroeconomic analysis department at FG Finam, believes. She told Izvestia about this on December 26.
As the expert recalled, on December 16, the Central Bank kept the key rate at 7.5%. At the same time, the regulator noted that in the future it would make decisions “taking into account the actual and expected dynamics of inflation relative to the target, the process of structural adjustment of the economy, as well as assessing the risks from internal and external conditions and the reaction of financial markets to them.”
“At the same time, the phrase about the strengthening of pro-inflationary risks and the change in the assessment of the balance of risks in favor of the predominance of pro-inflationary risks over disinflationary ones, not only in the medium term, but even in the short term, indicate that the signal for future actions has become somewhat stronger,” Belenkaya believes.
According to her, the main pro-inflationary factors include the regulator’s expansion by the Ministry of Finance of the budget deficit forecast in 2022 from 0.9% of GDP to 2.0% of GDP before the meeting of the Central Bank of the Russian Federation, the deterioration of foreign trade conditions (the entry into force of the EU embargo on oil and the price ceiling , risks of a global recession), labor shortages, elevated inflationary expectations.
“However, for now, disinflationary factors are having a compensating effect – high savings activity of the population, caution in consumer behavior, as well as somewhat tightened monetary conditions (growth in interest rates on loans and deposits – without raising the key rate, but following OFZ yields (federal loan bonds. – Ed.) and an increase in the risk premium). Thanks to this, inflation rates are still assessed as moderate,” the analyst explained.
At the same time, the expert believes that over the past time since the meeting, pro-inflationary factors have slightly increased. She cited information from the publication Vedomostiwhich previously reported that it was decided to increase the federal budget expenditures planned for 2022 by 2 trillion rubles – from 29 trillion rubles to 31 trillion rubles.
“This will increase the infusion of budget funds into the economy at the beginning of 2023 and may increase inflationary pressure in the coming months,” Belenkaya explained.
In addition, since December there has been a weakening of the ruble, which in turn may be transferred in the coming months to the acceleration of inflation, she added.
The analyst also drew attention to the fact that earlier the Central Bank explained that the expected sharp decline in annual inflation in early 2023 will be associated with the base effect of early 2022 and will not be significant for monetary policy decisions.
“At the next meeting of the Central Bank of the Russian Federation in February next year (by that time the consequences of the oil embargo and the price ceiling for the budget and balance of payments of the Russian Federation will become clearer, and the embargo on petroleum products will come into force), options will probably be considered to maintain the key rate at the current level (7.5%) or its slight increase,” the analyst believes.
Another meeting of the Board of Directors of the Central Bank in the first quarter of 2023 will be held on March 17. According to the expert, in the absence of new significant changes in FG Finam, they estimate the likely range of the key rate at the end of Q1 2023 as 7.5-8%.
“Reducing the key rate so far looks irrelevant, but it is possible that the Central Bank of the Russian Federation may start it in the second half of 2023 if some of the inflationary risks do not materialize and consumer activity remains low. It will take time to evaluate this. Our forecast for the key rate range for next year is 7–8.5%,” Belenkaya concluded.
Earlier, on December 16, Maxim Petronevich, Senior Economist at the Otkritie Research Analytical Department of Otkritie Bank, expressed the opinion that the reduction of the key rate will continue in the first half of the year, unless there is a significant deterioration in the global economy.
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