At the previous meeting on 14 September, the Central Bank unexpectedly raised the rate by 25 basis points, thus completing the period of monetary easing. Its decision, the regulator explained the increase of inflationary risks. In addition, the Central Bank announced the termination of purchases of foreign currency carried out for the Ministry of Finance, before the end of this year.
The last time the Bank of Russia has lowered the rate in March, lowering it to 7.25%. After introduction of sanctions of the US Treasury in April and the resulting volatility in the securities market until September left the rate unchanged.
Pause before trouble
At the previous meeting, the Central Bank responded by raising rates on the destabilization of the currency market, which painfully took the markets and the public. Now the situation has somewhat improved, so the Central Bank has the opportunity to take a break, said General Director of “MC Sputnik — capital Management” Alexander Losev. With regard to internal factors, at the moment there is no regulator to worry about, agrees the analyst of Raiffeisenbank Denis Poryvai.
However, by the end of the year, the rate likely will have to raise, sure Forbes interviewed experts. The Russian market is expecting a difficult end of the year, so the Central Bank should be ready, if necessary, to intervene in the situation, says Alexander Losev. On the one hand, in December, as expected by the market, the Federal reserve system (FRS) the USA will again raise the interest rate and the Central Bank will not be able to ignore it.
“From the fed do not expect a rate hike in November, so the Central Bank has time until December to assess the situation for the Russian economy. However, with the fed rate hike the key rate will have to increase and the Bank of Russia”, — says Alexander Losev.
The regulator will try to maintain the differential between real rates in Russia and the United States at the current level. “In such conditions it is difficult to leave it unchanged,” — said Poryvai.
On the other hand, at the end of November will clear up the issue of sanctions against Russia. “At the end of November, regardless of who wins the elections in the U.S. Congress, will discuss the results of the law “On combating the enemies of America through sanctions”, which was signed on 2 August 2017. And will establish new measures. Therefore, the pressure may increase”, — says Alexander Losev.
If the US decides to impose restrictions on investments in Russian government debt, it will hurt the market, and the Central Bank will have to be tough, perhaps by raising rates more than expected, said Denis Poryvai. “At the moment, they could even pre-empt the situation and to improve it by the imposition of sanctions, it would also be logical,” — concludes the analyst.
Also, the Central Bank will certainly take into account the situation in the peripheral markets, where there are problems due to the increasing debt burden, reduction of dollar liquidity and the increase of the key rates, and the upward trend in inflation and inflation expectations by year-end, experts add. These concerns also militate in favour of a rate hike before the end of 2018.