Economy

Russian central bank surprises with sharper-than-expected rate hike to 8.5%

Published

1 year ago

July 23, 2023

Russian central bank surprises with sharper-than-expected rate hike to 8.5%

By Elena Fabrichnaya, Alexander Marrow and Vladimir Soldatkin

MOSCOW (Reuters) -Russia’s central bank hiked its key interest rate by a greater-than-expected 100 basis points to 8.5% on Friday, raising the cost of borrowing as the weak rouble added to inflation pressure from a tight labour market and strong consumer demand.

It was the first time the bank had raised rates in more than a year, having gradually reversed an emergency hike to 20% made in February last year after Russia sent its armed forces into Ukraine, which prompted the West to impose sanctions on Moscow. Its last cut, to 7.5%, was in September.

“Pro-inflationary risks have increased significantly over the medium-term horizon,” the bank said in a statement. “The increase in domestic demand surpasses the capacity to expand production, including due to the limited availability of labour resources.”

This was reinforcing persistent inflationary pressure, it said, while the rouble’s depreciation this year was “significantly amplifying pro-inflationary risks”.

The central bank raised its year-end forecast for inflation – now just below 4% – to 5.0-6.5% from 4.5-6.5%, and said it was holding open the possibility of further hikes at future meetings.

SURPRISE DECISION

The decision surprised analysts polled by Reuters, who had forecast a 50-basis-point hike.

However, some analysts had revised their forecasts in recent days to anticipate an even larger rise as inflation data this week showed a jump in households’ inflationary expectations for July and an acceleration in Russia’s weekly consumer prices.

“The much larger-than-expected 100bp interest rate hike … underscores policymakers’ concerns about inflation risks,” said William Jackson, Chief Emerging Markets Economist at Capital Economics.

“And while we don’t think monetary tightening will continue quite as aggressively at subsequent meetings, we now expect at least another 100bp of hikes before the end of the year.”

Annual inflation had fallen below the bank’s 4% target in recent months, due to the high base effect from last year when inflation spiked to its highest level for over 20 years.

It is now running at 3.86%, the economy ministry said this week, and rising once more.

“The increase in inflationary pressure is primarily demand-driven,” Governor Elvira Nabiullina said, citing the domestic tourism market and automobile production as sectors where supply cannot keep up with demand.

That demand has pushed imports higher, causing the rouble to weaken as exports fall, Nabiullina said.

Alfa Bank Chief Economist Natalia Orlova said the rate hike looked like a reaction to the situation on the currency market, given that the other inflation pressures mentioned had been evident at the previous central bank meeting on June 9.

Nabiullina said the rouble’s weakening had been significant, but that excess demand, exacerbated by an insufficient labour force and supply constraints, was the key factor.

Pressure on the rouble has increased since an abortive armed mutiny by the Wagner mercenary group in late June. Attacks on Russian infrastructure, which Moscow has blamed on Ukraine, have also dampened risk appetite.

Central Bank Governor Elvira Nabiullina will shed more light on the bank’s forecasts and policy in a media briefing at 1200 GMT.

The next rate-setting meeting is scheduled for Sept. 15.

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

12 months ago

December 26, 2023

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.

The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.

Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.

“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.

Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.

“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.

The bank will next convene to set its benchmark rate on Feb. 16.

The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.

Economy

China identifies second set of projects in $140 billion spending plan

Published

12 months ago

December 25, 2023

China identifies second set of projects in $140 billion spending plan

© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo

SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.

With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.

The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.

China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.

The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.

“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.

The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.

($1 = 7.1315 renminbi)

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

12 months ago

December 25, 2023

Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.

“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.

Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.

“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.

The bank will next convene to set its benchmark rate on Feb. 16.

The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.