Bank of Russia Hiked Key Rate by One P.P. to 13 Percent, but Market Paid Little Attention

Today the Bank of Russia raised its key rate by 1 percentage point to 13% per annum, along with its inflation forecast for the end of 2023 to 6-7% against the previous estimate of 5-6.5%. CBR guides that annual inflation will return to the 4% target in 2024 and will be near 4% going forward for some time. Furthermore, CBR admitted that “the current inflationary pressure has increased: on average, over the past 3 months, seasonally adjusted consumer prices increased by 9% annually”.

In response to that, the ruble spot (USDRUB) has been hovering nearly unchanged close to its September average level of 96.70. The reason markets remained unemotional on this highly anticipated action may be because economists and traders were waiting for CBR to clearly address the export revenue repatriation issue, admitting the conventional monetary measures will provide only a temporary relief agains further ruble weakening.

The regulator again gave a tough signal to the market: it will assess the rationale of further raising the key rate at the next meetings. The Central Bank also stated, that the expected cooling down of inflation to its 4% target and stabilization near that level presuppose a long period of maintaining tight monetary conditions in the economy.

This was the third consecutive rate increase in a month and a half: firstly, CBR raised its key rate at the July 21 meeting by 1 p.p. to 8.5%, and then unscheduledly hiked the rate on August 15 by a chunk portion to 12%. On August 14, on the eve of the unscheduled meeting, the dollar exchange rate broke through 100 rubles/$ – the risks of price stability due to the then ongoing ruble devaluation became the main reason announced by the Central Bank to undertake its drastic out-of-sequence measures. Since then, the dollar has eased down somewhat, but hardly significantly: on September 15 it is trading at around 96.60-96.70 rubles/$, as it was mentioned above.