Page 103 - RusRPTMay21

ROE of 21% and a Rb1.6tn loan portfolio (+2% y/y).
8.2 Central Bank policy rate
The Central Bank of Russia (CBR) opted for a "golden mean" interest rate hike on April 23 by more than expected, increasing the rate by 50bp to 5%, its second hike of the year on the back of rising inflation and geopolitical worries. The more aggressive hike is designed to strike a balance between the two extremes of excess and deficiency, according to the brooch worn by the Central Bank governor that she uses to signal her intentions.
Analysts were unanimous in their expectation of a rate hike, but most were expecting a 25bp increase, as inflation is thought to have peaked in the last month.
Inflation has risen strongly in the first months of this year on the back of rising food prices, but also the pass-through from a steep devaluation of the ruble caused by mounting geopolitical pressure which has caused heightened ruble volatility.
From a macro-economic point of view the rate hike is considered by many as unnecessary, or at least economics alone demands a hike of no more than 25bp.
Inflation started to slow recently with consumer price inflation (CPI) dropping from 5.8% year on year in March to 5.5% y/y in mid-April.
The main reason for inflation easing has been the base effects in fruits and vegetables, as well as rising inflationary pressures in other sectors.
In non-food goods and services (excluding utilities), pressures have intensified far beyond 4%. As a result, core CPI has risen from 4% y/y to 4.5% y/y, above the CBR’s target rate of 4%.
“Higher cost-push pressures from Russia’s rapid economic recovery have run into supply-chain disruptions, which could push costs upwards both locally and globally. The current run rates imply that inflation could end 2021 at 4.4% y/y before easing to 4% in 1H22,” Alexander Isakov, chief economist at VTB Capital (VTBC), said in a recent note.
CBR Governor Elvira Nabiullina has been reacting to geopolitical pressure and surprised the market in March with a 25bp prophylactic hike to shore up the ruble ahead of the new April 15 US sanctions that targeted Russian domestic debt.
“This has nothing to do with inflation, [but] all to do with geopolitical risks. It
103 RUSSIA Country Report May 2021 www.intellinews.com