The rise in Russian consumer price inflation to 0.6% month on month and 8.6% year on year in June 2024 (up from 8.3% y/y in May) could push the Central Bank of Russia (CBR) to ramp up the key interest rate from 16% to 18% at the July 26 policy meeting, the analysts believe. (chart)

As covered by bne IntelliNews, the board of the Central Bank of Russia (CBR) at the June 7 policy meeting resolved to keep the key interest rate unchanged at 16%, making a neutral rate decision for the fourth consecutive time. (chart) 

However, as inflation pressures continue to build up, the regulator is expected to significantly hike the interest rate already at the next July 26 policy meeting.

Capital Economics believes that a further large rise in inflation is likely in July, with the latest weekly data suggesting that the headline inflation rate could breach 9% in the reporting month. At the same time CBR officials have been telegraphing a more hawkish approach at the upcoming policy meeting.

Capital Economics “had expected a 100bp [basis point] hike but the latest inflation figures and hawkish comments from policymakers likely seal the deal on a larger 200bp increase”.

Renaissance Capital analysts also see a risk of “increased inflationary pressure in July”, which  “shifts the balance of possible decisions at the July 26 meeting somewhat in favour of a 200bp rate hike rather than 150bp”. 

“We still see these two outcomes as the most likely, with a further 50bp rate hike on September 13”, RenCap analysts argue, seeing  a key rate of 18%-18.5% at end-3Q24 as the baseline scenario.