Russia’s inflation breaches 6% target, banks prepare for next interest rate hike

Russia’s inflation breaches 6% target, banks prepare for next interest rate hike

Russia's inflation is steadily rising as base effects wear off forcing the CBR to continually hike rates / bne IntelliNews

By bne IntelliNews October 19, 2023

Annual inflation in Russia reached 6.3% as of October 9, accelerating further from 6% seen in September, according to the latest data by the Central Bank of Russia (CBR). Separate estimates by the Ministry of Economic Development showed that based on weekly data, annual inflation accelerated to 6.38% as of October 16.

Annual inflation has thus effectively breached the 6%-7% full-year inflation guidance previously provided by the CBR in September. (chart)

To remind, the Central Bank of Russia (CBR) has recently reiterated a hawkish stance and said that it will be necessary to maintain a stringent monetary policy in 2024.

"The return of inflation to target under stimulative fiscal policy in 2024 may require additional tightening of monetary policy," the central bank analysts commented, as cited by Reuters. The previous key rate hikes have not yet translated into a notable slowdown in inflation, they added.

The next policy meeting is scheduled for October 27. At the September 15 policy meeting the regulator resolved to increase the key rate from 12% to 13%, following the emergency hike by 350 basis points in August amid the ruble weakening. (chart)

In the meantime, a separate report by RBC business portal showed that in mid-October the Russian banks sharply increased their borrowings from the CBR, with the liabilities to the regulator peaking at RUB7.14 trillion on October 13.

The banking sector is now effectively in a mode of structural liquidity deficit, with the banking debt to the CBR exceeding the amount of funds placed in deposits and correspondent accounts with the CBR. As of October 13 the deficit exceeded RUB6 trillion, falling back to RUB1.19 trillion by October 17. The analysts surveyed by RBC believe that the banks are building up liquidity at cheaper rates expecting further key rate hikes on October 27.

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