CBR Hiked Key Rate to Highest Since May 2022 to 15 Percent

The Central Bank of Russia lifted the key rate by a whopping 200 b.p. to an eye-popping 15%. Thus, CBR once again raised the rate by a wide margin. The regulator's decision, however, was anticipated by many market participants, therefore ruble strengthening occurred in orderly fashion.

Among the underpinning the decision factors are the deteriorated inflation forecast for the end of the year. It is now expected to be higher than 7%, although the Bank's forecast was originally 6% maximum. Some other factors also influenced the regulator's decision.

Let’s recall that previously, CBR raised the main refi rate to 13%. It should be noted that the effect of the rate increase is usually manifested with a delay of 2 quarters, so now only the first manifestations are detectable, and the flow of finances from savings and current accounts to fixed term deposits has begun.

In addition, the recent bill issued by president Putin on the mandatory sale of export currency proceeds gives confidence that the effect of transferring the exchange rate to prices will pass faster, and this factor will stop contributing to the price rise sooner than expected. Also, it would be interesting for FX analysts to find an answer why the recent, equally impressive, rate hike by the Central Bank of Turkey did not bring as evident impact on USDTRY exchange rate as Russia’s CB did on USDRUB exchange rate. The ruble soared on the back of the key rate hike by 15%. So far, there’s no clear answer to that question.