Russia to hold rates at 16% with first cut expected in June – Reuters poll

By Elena Fabrichnaya and Alexander Marrow

MOSCOW (Reuters) – Russia will hold interest rates at 16% on Friday, a Reuters poll showed on Monday, with many economists expecting the bank to start easing monetary policy in June as inflation is stubbornly high.

Inflation has eroded Russians’ living standards over the last decade. President Vladimir Putin, fresh from securing a new six-year term in office, has recycled old promises with new deadlines and pledged more than 11.5 trillion roubles ($125 billion) of public spending.

Widespread labour shortages, rouble weakness, hefty government spending to fund what Moscow calls its “special military operation” in Ukraine, have all driven prices higher.

All 24 analysts and economists polled by Reuters on Monday predicted that the Bank of Russia would keep its key rate at 16% at Friday’s meeting.

We expect no changes in terms of rate or rhetoric, said Expert RA Chief Economist Anton Tabakh, with the central bank waiting for its previous monetary tightening to have an effect in the second half of this year.

Sovcombank chief analyst Mikhail Vasilyev, predicting a hold, said there was a 30% chance of a rate hike to 17%, as inflation continued to pose risks.

Inflation, the bank’s main area of concern, stood at 7.4% in 2023, following on from an 11.9% reading in 2022. Economists expect it to remain well above the central bank’s 4% target this year.

“We believe that the annual inflation will start to slow down significantly only from the summer,” said Natalya Milchakova, lead analyst at Freedom Finance Global. “A key rate cut is still a long way off.”

In late February, 2022 Russia ramped up its benchmark rate to 20% in an emergency move after Moscow despatched tens of thousands of troops to Ukraine, which led the West to impose increasingly wide-ranging sanctions on Russia.

The key rate was gradually cut to 7.5%, before the bank started hiking again in July 2023. It held rates at 16% in February.

($1 = 91.9050 roubles)