We expect the Bank of Russia to maintain its key rate of 14% at its next meeting on October 23. We believe that the October meeting will be generally similar to the previous September meeting. We believe that the Central Bank will consider only maintaining the rate.
The Bank of Russia indicated that among the key factors for making a decision on the rate at the October meeting would be the dynamics of steady inflation, inflation expectations, corporate credit and money supply, the situation on the fuel market, and final budget adjustments.
According to Alexander Zabotkin, deputy chairman of the Central Bank, the announced budget parameters for the three-year period fit into the prerequisites of the July forecast of the Bank of Russia and therefore are unlikely to affect the trajectory of the key rate.
As for other key indicators, so far we do not see significant improvements compared to the September meeting, which would allow the Central Bank to lower its key rate in October.
We see an acceleration in inflation in early October above expectations, including in the stable components of inflation, and there are significant risks that inflation will exceed the Central Bank's forecast of 6-7% by the end of the year. Our inflation forecast for the end of the year is 7.1%, while we see risks of even higher inflation.
The geopolitical situation remains difficult, difficulties remain in the fuel market, and the retirement of a number of production facilities continues. Inflation expectations of the population, businesses and professional analysts are at an elevated level, including due to the indexation of utility tariffs from October 1 above expectations.
Forecast for the next meetings
Following the October meeting, we expect cautious rhetoric and a neutral signal regarding further decisions to be maintained.
We believe that inflation will reach 7.1% by the end of the year, i.e. it will exceed the current forecast of the Central Bank of 6-7%. Therefore, we expect that at the next meeting on December 18, the Bank of Russia will again maintain its key rate of 14%.
We expect the Bank of Russia to raise its inflation forecast for this year to 6.5-7.5% from 6-7% and maintain its inflation forecast for the end of 2027 at 4%.
We believe that the Bank of Russia may raise the forecast for the average interest rate for 2027 from 10.5-12.5% to 11-13% (or even to 11.5-13.5%).
In the baseline scenario, we expect the key rate to decrease by 100 bps next year, to 13% by the end of 2027. We forecast the average rate in 2027 at 13.5%.
In a risky scenario, in the event of sustained inflation at elevated levels, rising inflation expectations, negative surprises from geopolitics, and continued problems in the fuel market, the Bank of Russia may begin preparing to raise its key interest rate next year.
The impact of the Central Bank's decision on inflation
Keeping the rate at 14% will help maintain moderately tight monetary conditions. They will continue to restrain consumer and investment demand, as well as stimulate the propensity of citizens and businesses to save rather than spend.
An additional disinflationary factor may be the stable ruble exchange rate, which, according to our forecast, will remain close to current levels until the end of the year.
At the same time, the difficult fuel situation, increased transport costs, increased inflation expectations, and the indexation of utility tariffs from October 1 significantly above the target 4% may keep inflation at an elevated level in the coming months.
With continued strong consumer demand and elevated inflation expectations, it will be easier for companies to transfer increased transportation and tariff costs to consumer prices.
Impact on deposit rates
We do not expect a significant change in deposit rates after the meeting.
According to the Central Bank, the average maximum deposit rate in the Top 10 banks in the first decade of October remained at 13.06%, the highest in 5 months.
We believe that in the coming weeks after the meeting, deposit rates will continue to be in the range of 12.9-13.2%.
We believe that depositors should adhere to the strategy of having several deposits for different periods: long-term deposits will help to fix the current profitability in the scenario of continued reduction of the key rate; short-term deposits will allow them to have funds in case more profitable deposit offers appear.
Impact on credit rates
We believe that the rates on consumer loans and mortgages will not significantly change after the decision of the Central Bank.
In general, high loan rates can persist for a long time, so borrowers should carefully plan their financial options.
Impact on the ruble exchange rate
We believe that the ruble exchange rate will not significantly react to the Central Bank's decision at the moment, as it has already been generally taken into account in market expectations.
The real ruble rate (minus inflation) will remain high, which will continue to support the ruble.
We expect that in the coming weeks after the meeting, the ruble will remain stable and will trade in the established ranges of 82-87 per dollar, 12.2-13.0 per yuan and 93-98 per euro.
The ruble is supported by a trade surplus and increased prices for oil and other raw materials due to ongoing tensions in the Middle East.
Negative factors for the ruble are geopolitical and sanctions risks, difficulties with exports from the Black Sea, purchases of imported fuel, and purchases of foreign currency by the Ministry of Finance under the budget rule for 12.1 billion rubles per day.
Impact on investors
In our opinion, the results of the Central Bank meeting will be rather harsh. The balance of risks is still shifted towards pro-inflationary factors (geopolitical and budgetary risks, increased inflation expectations).
Therefore, we do not expect any significant growth in stocks and OFZ following the results of this meeting.
In these circumstances, we consider it reasonable to keep the focus on protective instruments: deposits, liquidity funds and bonds of reliable corporate issuers. Fixed—coupon bonds allow you to consolidate the current yield, while floating-coupon bonds reduce the sensitivity of the portfolio to a possible increase in interest rates.
In case of a possible weakening of the ruble, it is wise to keep foreign currency assets in the portfolio, including replacement bonds and gold.
Mikhail Vasiliev, Chief Analyst at Sovcombank.The "Comments" section of the AK&M news agency publishes materials submitted by Russian and foreign investment companies and banks. Their opinions may not coincide with the opinion of the editorial staff of the AK&M agency. The opinions presented in the comments are expressed taking into account the situation at the time of publication of the material. The comments are for informational purposes only; they do not constitute an offer or advice on the purchase or sale of securities. For questions about the placement of information in this section, please contact the agency's editorial office by phone (499) 132-61-30 ext. 0102.
