Page 171 - RusRPTAug24

interview . The largest investments are planned for 2024 - more than 50bn rubles. According to him, the bulk of the investment went to the purchase, development and maintenance of domestic software. VTB began working on the most complex systems back in 2021 and expects to complete all stages of the transition to their Russian counterparts in 2025–2026. VTB has currently transferred 85% of the bank's internal systems to Russian software, Kulik shared the figures. According to data as of the end of 2023, this figure was 70%, he also reported to the IT publication CNews.
8.2 Central Bank policy rate
CBR delivered a bumper 200bp hike to 18% on July 26, and leaves door open for further tightening.
Russia’s central bank (CBR) stepped up to the plate with a 200bp hike to its key policy rate today, to 18.00%, in response to the overheating economy and a renewed surge in inflation. While we think inflation is nearing a peak and our central forecast is that the CBR will hold rates at its upcoming meetings, the risks are clearly skewed towards further tightening.
The decision was expected by a majority of analysts polled by Refinitiv, although some analysts had expected a smaller 100bp hike. The data have forced the CBR’s hand. Inflation rose to 8.6% y/y in June and a further rise to around 9.0% y/y is likely in July. The economy has continued to motor along too, and this has kept the labour market exceptionally tight.
The CBR revised up its year-end inflation forecast substantially from 4.3-4.8% to 6.5-7.0% (taking it much closer to our current forecast of 6.3%). The accompanying press statement noted that “the balance of inflation risks is still tilted to the upside”. The central bank didn’t provide explicit forward guidance, but it said that “it holds the open the prospect of increasing the key rate its upcoming meeting”. The CBR’s forecasts imply that the key rate will average 18.0-19.4% over the rest of this year, which suggests that it may consider another 50-150bp or so of hikes if inflation evolves in line with its forecast.
Given our year-end inflation forecast is slightly below the CBR’s, we are maintaining our forecast that interest rates will be left on hold over the rest of this year. However, with the labour market so tight and large military spending supporting activity, the risks are clearly skewed towards higher inflation and interest rates.
The Russian economy continues to be in a state of overheating. The current price growth slowed down somewhat in June, but inflation pressure remains high, the Central Bank states.
171 RUSSIA Country Report August 2024 www.intellinews.com