Page 100 - RusRPTNov21

with SPB Exchange, will mount in 2022.
8.2 Central Bank policy rate
The board of the Central Bank of Russia (CBR) resolved to increase the key interest rate by 75 basis points to 7.5% at the policy meeting of October 22, making a hawkish move that surprised the market.
As reported by bne IntelliNews, Russia's consumer price inflation continued to accelerate, posting 7.4% year on year in September, exceeding market expectations and paving way for higher interest rates. Last month the CBR continued to toughen its monetary policy and raised its key rate by 25 basis points to 6.75% per annum.
However, the market expected a hike of 50bp from the regulator, with some believing that the prospect of slamming the brakes on economic growth from upcoming lockdowns could mean a more modest hike of 25bp.
But with a 75bp aggressive hike the CBR has remained strictly inflation-minded, saying in an accompanying statement that "the balance of risks for inflation is notably tilted to the upside,” and seeing the risks of "a more sustained deviation of inflation from the target."
Inflation prime concern
Previously, as inflationary and external conditions worsened sharply in 2018, Governor of the CBR Elvira Nabiullina showed that she was not afraid to hike rates boldly, and famously maintained that "it is better to hike the rate a little now than a lot later".
This year the CBR has already hiked the rate by a total of 325 basis points, even as the economy started to slow down and the growth could further be limited by lockdowns planned for the end of October. The latest hike of 75bp is not the sharpest one this year, as in July the regulator implemented a 100bp increase.
"The CBR pre-emptively hiked the key rate to bring market interest rates closer to inflation levels to incentivise more saving and to lessen demand amid supply constraints," Sova Capital commented, seeing inflationary pressures as persisting in 4Q21, as supply disruptions and labour shortages will not be easy to overcome in the short term.
"The decision is sharper than expected, intended to signal to the market that the Bank of Russia is really concerned with the spike in CPI and inflationary expectations,” chief economist at ING Bank in Moscow Dmitry Dolgin told Bloomberg. “Inflationary risks are prioritised over the risks to economic activity due to the new wave of COVID in Russia,” he added.
Chief strategist of Aton Equity Alexander Kudrin commented that the CBR no longer expects inflation to comply with the 4% target by the end of 2022, correcting the forecast on inflation to the range of 4-4.5% and the forecast on average key rate to 7.3%-8.3% in 2022.
100 RUSSIA Country Report November 2021 www.intellinews.com