By Elena Fabrichnaya and Alexander Marrow
MOSCOW (Reuters) – The Russian central bank is expected to hold its key interest rate at 7.5% on Friday, as inflation continues to slow and in order to assess the possible economic impact of the oil price cap and embargo, a Reuters poll showed on Monday.
The bank’s rate-cutting spree has ended, after the gradual reversal of an emergency rate hike to 20% in late February that followed Russia’s decision to send tens of thousands of troops into Ukraine and the imposition of increasingly wide-ranging Western sanctions in response.
The Bank of Russia has made six rate cuts since then, but opted to hold at 7.5% at its last meeting in October, cautioning that expectations of price rises had grown and that Russia’s partial mobilisation could stoke longer term inflation due to a shrinking labour force.
All 23 analysts and economists polled by Reuters on Monday predicted that Russia would keep its benchmark rate unchanged again on Friday.
There is no intrigue surrounding Friday’s rate decision, said Dmitry Polevoy, head of investment at Locko Invest.
“The 7.5% rate is unlikely to be changed and the neutral signal maintained,” he said.
Inflation is far above the central bank’s 4% target, but down from 20-year highs reached shortly after the now more than nine-month long conflict in Ukraine began.
Annual inflation slowed to 11.98% in November, partly due to the strong rouble and weak demand.
“Inflation is slowing down now, but not sharply,” said Andrei Dyuryagin, investments director at MKB Investments. “Due to the high base effect, this trend is likely to continue into the first quarter of next year.”
Several analysts expected the Bank of Russia to adopt a wait-and-see approach.
“The regulator will probably prefer to wait, in order to assess the impact on the economy, rouble rate and inflation of new restrictions on Russian oil,” said Mikhail Vasilyev, chief analyst at Sovcombank, referring to the EU embargo and G7 price cap.
Russia’s economy, saddled with subdued consumer demand, falling disposable incomes and labour shortages that the government has flagged as a concern, is on shaky ground. Analysts have warned that mobilisation will be a significant drag in 2023.
“The most significant proinflationary factor will be the continued decline in the output of products in the economy, due to sanctions and the shortage of skilled labour,” said Rosselkhozbank’s Dmitry Tarasov.
(Reporting by Alexander Marrow and Elena Fabrichnaya; Editing by Chizu Nomiyama)