Inflation indicates CBR might hike key rate to 17% in July - VTB
MOSCOW. June 28 (Interfax) - The inflation picture in Russia indicates that the "alternative scenario" is playing out and the Central Bank of Russia (CBR) might raise its key interest rate to 17% from the current 16%, the first deputy CEO of state bank VTB , Dmitry Pyanov said.
"We're seeing by inflation patterns that we've entered, in my view, the alternative scenario," Pyanov told reporters.
VTB analysts see four equally likely possibilities for the CBR's rate decision in July: keeping it at 16%, or raising it by 100 basis points to 17%, by 200 points to 18% and by 400 points to 20%. "Inflation patterns could jeopardize already reaching the inflation target of 4% in 2025," Pyanov said.
"We will certainly see a rate increase, in my view. Not masters of the game, mathematicians in our ranks multiplied all this with a 25% probability and came up with 17.75%, concluded that it will probably be 18%. But since the game is not just mathematics but also music, it will probably be plus 100 basis points, the key rate will be raised to 17% at the next meeting," Pyanov said.
No one can say at the moment where the CBR rate will go from there, he said. Everything will be determined by the effectiveness of the upcoming tightening of monetary policy and its impact on inflation.
"Unfortunately, we will deliberate from board meeting to meeting on the rate," Pyanov said.
Annual inflation in Russia, according to calculations based on data from the Federal Statistics Service, accelerated to 8.57% as of June 24 from 8.46% on June 17 and 8.30% at the end of May if it is calculated from weekly changes, which is the method used by the CBR. If it is calculated based on average daily data for all of June 2023, the method to which the Economic Development Ministry has switched, it accelerated to 8.61% from 8.46% on June 17.
The CBR board of directors decided on June 7 to keep the key rate at 16%, but the CBR hardened its policy signal to the market, saying that the rate might be raised at the next meeting and that it would need to maintain tight monetary policy for a longer period than it anticipated in April. The next meeting on the rate will be held on July 26 and will be accompanied by the publication of a medium-term forecast.
The CBR said earlier that it might significantly raise the key rate in July if it is certain that the "alternative scenario" is playing out. Central Bank chief Elvira Nabiullina said that a significant increase would be a hike of more than 1 percentage point.