By Alexander Marrow and Elena Fabrichnaya
(Reuters) – Accelerating inflation will force Russia to maintain double-digit interest rates deep into next year, a Reuters poll showed on Friday, while the rouble has limited prospects to stage any kind of significant recovery in the coming 12 months.
The rouble strengthened sharply in mid August after hitting a near 17-month low of 101.75 to the dollar, as the central bank hiked its key rate by 350 basis points to 12% at an emergency meeting.
Exporters also increased selling of their foreign currency revenue following discussions with Russian authorities in a turbulent month for the rouble, which still remains outside the 80-90 range against the dollar that the government has named as preferable.
The rouble’s weakening — it has lost almost a quarter in value this year — is adding to already significant inflationary pressure from Russia’s wide budget deficit, a strained labour market and strong consumer demand.
The average forecast of 12 analysts and economists polled in late August now expect inflation to hit 6.5% by year-end, up from 5.6% forecast a month ago, and well above the central bank’s 4% target.
Analysts envisage the bank’s key rate remaining at 12% until year end and only dropping below 10% in the fourth quarter of 2024. The bank next meets to set rates on Sept. 15.
“In the baseline scenario, we expect the key rate cut cycle to start in the second quarter of 2024, when inflation begins to slow down,” said Mikhail Vasilyev, chief analyst at Sovcombank.
“We expect inflation to slow to 5.5% by the end of 2024 and the key rate to be lowered to 8.5%.”
Analysts gave the rouble only a slim chance of strengthening from current levels near 96 to the dollar, with the average forecast suggesting the rouble will trade at 95.00 against the dollar a year from now, down from a prediction of 89.00 a month ago.
In spite of higher rate expectations, analysts maintained their average forecast for Russian gross domestic product (GDP) growth in 2023 of 2.0%, the same as in the late July poll.
(Reporting and polling by Alexander Marrow and Elena Fabrichnaya; Editing by Kim Coghill)
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