Page 173 - RusRPTAug24

estimates for future years will most likely be revised as well.
Two flies in the ointment: Firstly, the Bank of Russia’s new inflation (6.5–7.0%) and GDP growth (3.5–4.0%) forecasts for 2024 look achievable and will most likely not require significant revision in September. Secondly, the Bank of Russia has indicated its inflation forecast for 2025 as a range of 4.0–4.5%. In our opinion, the Bank of Russia is thereby giving itself room to maneuver and additional time to reduce inflation to the target, rather than talking about an uncompromising achievement of 4.0% by the end of 2025.
The Bank of Russia's new estimate of the neutral rate level: 7.5–8.5% (also indicated as the rate target for 2027). Our estimate of its level is 10%, and we do not expect the key rate to be cut to single digits in the foreseeable future.
The Bank of Russia's lower estimate of the neutral rate level than ours limits the potential for additional tightening: its estimate of the degree of policy tightness remains more significant (but this may change if the regulator further revises the neutral rate level upwards).
In our opinion, the overall tone of the press conference by Bank of Russia Chairperson E.S. Nabiullina was less harsh than the press release. The Chairperson reiterated that the Bank of Russia will consider the "advisability of raising" the rate at the next meeting, "does not rule out raising the rate if this is required to return inflation to the target," and also emphasized the importance of budget plans for future rate decisions.
However, the overall assessment of the situation and plans for the future was presented in a calm and confident tone. The Chairperson noted that raising the rate by 200 bp was supported by an overwhelming majority of board members, but there were also opinions about both maintaining the rate and increasing it to 19% or 20%, “to complete the cycle faster”.
Based on this, it can be assumed that 20% is indeed the upper limit of a potential rate hike in this cycle within the current understanding of the Bank of Russia. It was also noted that the current forecast does not provide for the possibility of cutting the rate this year.
We maintain our forecast for an additional 50 bp rate hike to 18.5% at the meeting on September 13. Most likely, this will be due to two factors:
1) the dynamics of inflation, which will slow down, but probably not quickly enough (due to the inertia of inflation processes) to convince the Bank of Russia of the possibility of completing the cycle;
2) with budget plans for subsequent years. However, we cannot say that our conviction in an additional rate hike has increased significantly since the current meeting, so we still consider the range of 0-100 bp acceptable as the
173 RUSSIA Country Report August 2024 www.intellinews.com