Central Bank of Russia hikes rate 25 bps to 4.5% with hawkish signal
MOSCOW. March 19 (Interfax) - The Central Bank of Russia's board of directors on Friday decided to hike the key rate 25 basis points to 4.50% per annum, the regulator said in a press release.
Most analysts polled said they thought the regulator would opt to hold the rate at 4.25% but a very few said an increase to 4.50% was possible.
The CBR last changed the rate in July 2020, lowering it 25 bps to 4.25%. It left the rate unchanged following policy meetings in September, October and November 2020 and at its last meeting on February 12, 2021.
The regulator had not hiked the rate since December 2018, when it went up 25 bps to 7.75%.
The Central Bank effectively brought the monetary easing cycle to a close with comments following its February decision to hold the rate. "If the situation develops in line with the baseline forecast, the Bank of Russia will determine the timeline and pace of a return to neutral monetary policy taking into account the still high heterogeneity of current economic and price movement trends, actual and expected inflation dynamics relative to the target, economic developments over the forecast horizon, as well as risks posed by domestic and external conditions and the reaction of financial markets," it said at the time.
The signal that accompanied the latest decision, to hike rate, was more hawkish still. "The Bank of Russia will continue to determine the timeline and pace of a return to neutral monetary policy taking into account actual and expected inflation dynamics relative to the target and economic developments over the forecast horizon, as well as risks posed by domestic and external conditions and the reaction of financial markets. That said, the Bank of Russia holds open the prospect of further increases in the key rate at its upcoming meetings," it said this time. By "upcoming meetings" the CBR means one of its next three meetings, in April, June and July.
"Inflation is developing above the Bank of Russia's forecast. In February, the annual consumer price growth rate rose to 5.7% vs 5.2% in January and, according to the 15 March assessments, reached 5.8%. Based on Bank of Russia estimates, indicators reflecting the most sustainable price movements substantially exceed 4% (annualised)," the CBR said in its commentary to the March 19 decision.
"This largely reflects a steady nature of the recovery in domestic demand. Its influence on price growth rates is enhanced by restrictions on foreign travel. The funds that households have been unable to spend for this purpose are partially redistributed in favour of domestic goods and service consumption. Additional pressure on price growth is exerted by supply-side factors that constrain the production of certain goods," it said.
"Domestic demand is recovering more steadily and faster than expected, outstripping the pace of output growth in a number of sectors. The expectations with regard to external demand are also improving on the back of additional fiscal support measures in certain countries and accelerating vaccination paces of the population. Inflation expectations of households and businesses remain elevated. The balance of risks has shifted towards proinflationary ones," it said.