Page 43 - RusRPTDec23

After the ruble fell to RUB100 to the dollar in August, Central Bank of Russia (CBR) governor Elvia Nabiullina was forced to put through a whopping 350bp rate hike on August 15 to put a floor under the currency’s value. That was followed by another surprise 200bp rate hike in October – 100bp more than analysts were expecting – as the regulator moved aggressively to reign in the persistent inflation. Analysts say that at least one more rate hike is on the cards before the end of this year or the start of next year.
“The further chunky rise in Russian inflation to 6.7% y/y in October provides additional evidence that demand is outstripping supply in Russia’s economy. We think that inflation will continue to rise over the coming months and that the CBR will have to hike interest rates further early next year,” Nicholas Farr, an emerging Europe economist with Capital Economics, said in a note.
October’s inflation result was higher than September’s reading of 6.0% y/y, and in line with the consensus forecast among analysts. In month-on-month terms, prices increased by a solid 0.8% – the second strongest reading so far this year, Capital Economics reports.
The breakdown showed that services inflation picked up for the second consecutive month from 9.7% y/y to 9.9% y/y, while non-food goods inflation rose from 4.6% y/y to 5.1% y/y. Food inflation recorded another strong increase from 4.9% y/y to 6.0% y/y.
Alongside demand-supply imbalances (which are partially attributable to the war), the weaker ruble is also playing a role – the currency has fallen by around 20% against the dollar year-to-date.
Nabiullina is in a bind as the Kremlin is pouring ever more money into the war machine and the conscription of hundreds of thousands men into the military has made the labour market very tight. That has forced up nominal wages, as companies struggle to keep factory lines staffed, adding to inflation. Monetary policy has little impact on these inflationary forces.
“While the CBR’s statement dropped its guidance about considering further rate increases at upcoming meetings, we think that interest rates are yet to reach a peak,” says Farr. “The tightening cycle may be paused at the next meeting in December, but we think the CBR is not fully factoring into its forecasts the further rise in inflation that will come through next year. We expect another 100bp hike in the first quarter, taking the policy rate to 16.00%.”
Russians’ 1-year inflationary expectations increased to 12.2% in November from 11.2% in October, agency inFOM said on November 16 in a report commissioned by the central bank. Perceived inflation in November grew to 15.1% from 13.9% in October.
43 RUSSIA Country Report December 2023 www.intellinews.com