Hike rates

Russia to raise rates by 100 basis points in February as Ukraine tensions and inflation bite

  • The Bank of Russia is expected to raise its key rate to 9.5% in February
  • Inflation at its highest since early 2016
  • Geopolitical risks hit Russian markets
  • The ruble strengthens if geopolitical risks diminish

MOSCOW, Jan 31 (Reuters) – Soaring inflation and heightened tensions around Ukraine will prompt Russia’s central bank to raise its key rate by 100 basis points in February, a Reuters poll showed on Monday, ahead of a lower the cost of borrowing later this year.

January marked a shift in market expectations as the ruble fell sharply amid geopolitical turmoil, threatening to lower living standards and prompting authorities to halt daily purchases of dollars and euros for cash coffers. the state in order to ease the pressure on the rouble.

The average of 21 analysts polled at the end of January suggested that the Bank of Russia will raise the key rate to 9.50% at the February 11 board meeting (RUCBIR=ECI), as it seeks to bring the inflation to its target of 4%.

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The previous poll at the end of 2021 predicted a rate hike of 50 basis points in February. Read more

Higher rates may partially protect the ruble and Russian markets, hit by escalating Western fears that Moscow is about to invade neighboring Ukraine. Russia denies planning any incursion but has massed troops near the border. Read more

“The weakening of the ruble and geopolitical tensions have increased pro-inflationary risks and the likelihood of more drastic measures by the Bank of Russia to contain inflation,” said Kirill Sokolov, chief economist at Sovcombank.

Higher rates are designed to keep inflation in check and can support the ruble by making it more attractive to invest in high-yielding ruble assets.

“In the scenario of a gradual de-escalation of Russia’s relations with the West, the ruble has impressive strengthening potential,” said Mikhail Poddubsky, asset manager at MKB Investment.

High commodity prices, high rates in the country and upcoming dividend payments by Russian companies following record profits could bring the ruble closer to 70 against the greenback, he said.

But analysts were cautious for now. The poll suggests that the ruble will trade at 74.00 to the dollar and 82.88 to the euro 12 months from now, against forecasts of 71.70 and 83.40 respectively in the previous poll.

The central bank is expected to gradually lower the key rate to 8.5% by the end of the year, with forecasts ranging from 7.25% to 9.25%, according to the poll, compared to 8% in the previous poll. .

Annual inflation is expected to end this year at 5.5%, while economic growth in 2022 is estimated at 2.5%, as forecast in the previous survey, with growth of 4.5% in 2021.

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Reporting by Alexander Marrow with additional polling by Elena Fabrichnaya; Editing by Andrey Ostroukh and Chizu Nomiyama

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