Russia to raise rates in Dec before switching to cuts in 2022

2 minute read
Register now for FREE unlimited access to

MOSCOW, Nov 30 (Reuters) - Stubbornly high inflation will prompt the Russian central bank to raise its key interest rates for the seventh time this year in December, a Reuters poll showed on Tuesday, predicting a first rate cut in the second half of 2022.

Russia's inflation rate is near a five-year high above 8%, which erodes living standards and prompts the central bank to raise the cost of lending.

The average of 18 analysts polled in late November suggested the central bank will raise its key rate to 8% at the Dec. 17 board meeting (RUCBIR=ECI), with some analysts predicting a sharper rate hike.

Register now for FREE unlimited access to

The central bank could raise the key rate by 100 basis points to 8.5% in December, completing the rate-hiking cycle, said Kirill Sokolov, chief economist at Sovcombank.

"The rouble weakening, rising food prices, and elevated inflationary expectations create risks of inflation anchoring at high levels," Sokolov said.

Central Bank Governor Elvira Nabiullina said on Tuesday her bank will consider raising the key rate by up to 100 basis points in December, while President Vladimir Putin called for pre-emptive measures. read more

Annual inflation, which the central bank targets at 4%, is expected to finish this year at 8.0%, according to an average of the forecasts, up from 7.8% in the previous poll.

Higher rates are designed to tame inflation, a sensitive issue in Russia, but could slow economic recovery.

Russia's economy is expected to grow by 4.3% this year before slowing to 2.5% in 2022, the November poll showed. A month earlier, analysts had on average predicted the economy to grow by 4.2% and 2.6%, respectively.

Higher rates can support the rouble by making investments into high-yielding rouble assets more attractive.

The average of forecasts in the poll suggested the rouble will trade at 72.25 to the dollar and 83.38 to the euro 12 months from now, compared with forecasts of 72.75 and 83.50 respectively in the previous poll.

Russia's official exchange rates on Tuesday stood at 74.98 per dollar and 84.48 per euro.

Most of the forecasts in the Reuters poll were based on at least 10 individual projections.

Register now for FREE unlimited access to
Reporting by Andrey Ostroukh; additional polling by Alexander Marrow and Elena Fabrichnaya; Editing by Bernadette Baum

Our Standards: The Thomson Reuters Trust Principles.