The Bank of Russia kept its key rate at 14.0% per annum at its meeting on September 11. Formally, the signal remained neutral, but the set of arguments in today's press release and comments by the head of the Central Bank has become noticeably tougher. At a press conference, Elvira Nabiullina clarified that only the preservation of the rate was discussed in detail, while its reduction was not considered meaningfully.
The main tightening is related to inflation. Compared to the July press release, the Central Bank raised its estimate of steady price growth from 4-5% to 5-6% in annual terms, and current and underlying inflation rates accelerated markedly in July. The statement by the head of the Central Bank separately noted that the fuel shock is already manifesting itself not only directly, but also through the costs of companies, inflationary expectations and demand. This makes it more significant for the rate trajectory than the usual one-time surge in prices.
The economic bloc has also become less unambiguously disinflationary. In July, more subdued economic dynamics and a slowdown in corporate lending were arguments in favor of a rate cut. Now the Central Bank has pointed to moderate economic growth, still increased demand and increased lending activity. In addition, the real rigidity of the DCS has decreased slightly since July, and the acceleration of credit, along with increased budget spending, supported the growth of the money supply.
Separately, the Central Bank has strengthened its assessment of pro-inflationary risks: now the regulator explicitly notes that they have grown and prevail over disinflationary ones. Budget remains an important factor. The Central Bank is waiting for its parameters until the end of September, and if the new designs turn out to be more inflationary, this may require a more rigid trajectory of the PREP.
Given the tightening of the Central Bank's rhetoric, extending the pause in October is already becoming the prevailing scenario for us. For a new downward step, the regulator will need confidence that the slowdown in sustained inflation is resuming: temporary price shocks are being exhausted, inflation expectations are stabilizing, credit activity is cooling, and published budget parameters do not create an additional pro-inflationary impulse. Until such signals appear, the rate cut cycle is likely to remain on pause.
Yuri Kravchenko, Head of the Banking and Money Market Analysis Department at IC VELES Capital.
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