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Business

The central bank may sharply raise the key rate

Ayush Mauryavanshi
Last updated: 2021/07/21 at 6:48 AM
By Ayush Mauryavanshi 2 years ago
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We explain why this will happen and how it will affect inflation, as well as interest on deposits and loans

The next meeting of the Board of Directors of the Central Bank will be held this Friday, July 23. The regulator will discuss monetary policy. Namely, how to slow down the accelerating inflation. The task is not trivial. And here are the recipes for the Central Bank.

WHY INFLATION IS GROWING

The latest data from Rosstat are not encouraging. Over the past year, prices have risen by 6.5%. And this is another anti-record (if we take the statistics for six years). But the saddest thing is that the pace is not slowing down in any way. In just 12 days in July, prices rose 0.4%. Although both the Central Bank and the Ministry of Economic Development predicted that in July and August inflation will decline. Did not happen.

In addition, another wave of coronavirus is growing in the world. Experts fear that countries will start imposing restrictions again. And this will hit business again and … will spur inflation. After all, the current rise in prices, both in Russia and in the world, is caused both by an increase in demand due to money distribution programs, and by a lack of supply in the market due to temporary production stops and bankruptcies associated with a lockdown.

There are two cautious reasons for rejoicing. The first is international. The UN food organization reported that food prices began to decline for the first time in the past year. And global factors also affect Russia. The second reason is internal. In the last week, potatoes, onions, cucumbers and tomatoes have fallen in price by 3 – 5%. At the same time, the growth record holder – carrots – does not seem to be going down in price. On the contrary, the price rises even more – by 2% per week, according to Rosstat data.

WHAT WILL THE CENTROBANK DO
The Central Bank has only one instrument – this is the key rate. The only question is how much it can rise. At the beginning of the year, this figure was equal to 4.25%, and then in three runs it rose to 5.5% per annum (see the graph). The rate means that for about this cost, commercial banks can borrow money from the Central Bank.

The assortment of the Central Bank is also small. The minimum step by which the rate can grow is 0.25%. There is no maximum. So, at the end of the distant 2014, it was immediately raised by 6.5 percentage points – up to 17% per annum. Then it was necessary to sharply bring down the panic in the foreign exchange market.

Most analysts believe that this time the Central Bank will raise the rate in the range from 0.5% to 1% per annum. And against the backdrop of continued growth in inflation, they are leaning towards the second figure.

  • The Central Bank of Russia will raise the key rate either by 0.75 percentage points, or by 1 percentage point. The likelihood of these two scenarios is approximately equal, – says Konstantin Svyatny, Chief Portfolio Manager of Aton Management Management Company.

Thus, after the meeting on Friday, the rate can be either 6.25% or 6.5% per annum. The Central Bank did not rule out such a scenario either.

  • Perhaps, to bring inflation expectations back, we will need to go above 6% in certain scenarios. But this has not yet been decided, it will depend on the incoming data, – said at the beginning of the years, Deputy Chairman of the Central Bank Alexei Zabotkin.

By the way, private investors interviewed by the Finam.ru portal believe that by the end of the year the rate may reach 7%.

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Posted by Ayush Mauryavanshi
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