The head of the Central Bank estimated the contribution of the nominal effective ruble exchange rate, which has fallen by 9% since the beginning of the year, at 0.9 percentage points. inflation, noting that a 10% depreciation adds 1 p.p. to annual inflation. over a three to six month horizon.

The rate hike was not completely unexpected, and while almost all analysts predicted that the rate would not change, market prices indicated that the Central Bank could decide on a bold step, says Sergei Romanchuk, head of foreign exchange and money markets operations at Metallinvestbank. According to him, the market allowed the rate increase by 0.5 percentage points.

The decision of the Central Bank is absolutely correct, it is “very important point to stabilize market sentiment and reduce inflationary risks,” Kirill Tremasov, director of the Loko-Invest analytical department, told RBC, the only one of 24 analysts to increase the rate (according to the Reuters consensus forecast). “Decisions of the Central Bank are made primarily through the prism of influence on inflationary risks. It is very good that the Central Bank has recognized the danger of a serious acceleration of inflation,” Tremasov said.

Why the ruble began to appreciate

The market reacted very positively to the decision of the Central Bank. The ruble instantly rose against the dollar and the euro: if just before the announcement of the decision, the dollar was trading at 68.4 rubles, then six minutes after it was at 67.8 rubles. (the euro fell in price from 80 to 79.4 rubles over the same time). True, by the evening (as of 20:00 Moscow time), the ruble exchange rate against the dollar corrected to 68.09 rubles, and rose to 79.24 rubles against the euro. Sberbank shares rose 2.84% on Friday evening. The yield on long OFZs fell slightly immediately after the rate was announced, but rose again in the evening.​

Now it’s not even the decision of the Central Bank to change the rate that is more important, but the fact that the bank extended the moratorium on the purchase of foreign currency for the Ministry of Finance, Sergey Romanchuk believes. It is this, and not the dynamics of the rate, that caused the strengthening of the ruble on Friday, Natalia Orlova, chief economist at Alfa Bank, agrees.

The fact that the Central Bank has suspended purchases means that the Ministry of Finance will buy foreign currency with the surplus from the sale of oil under the new mechanism as part of the budget rule. The Central Bank has been buying foreign currency for the Ministry of Finance on the market since February 2017 in volumes equal to additional budget revenues from oil and gas (revenues from the excess of actual oil prices of $40.8 per barrel). The purchased currency is sent to the National Welfare Fund. Under the terms of the moratorium, the Central Bank has the opportunity to directly sell foreign currency to the Ministry of Finance from gold and foreign exchange reserves.

The suspension of purchases does not mean a decrease in gold and foreign exchange reserves, but a reduction in the rate of their increase, Nabiullina emphasized: “When we assess that the volatility in the financial markets has decreased, and no matter what the ruble exchange rate will be, we will return to regular purchases of foreign currency and see how we will be able to compensate for delayed purchases.” Postponed currency purchases, she said, can stretch for more than a year.

“We can talk about the equivalent of the currency for 400 billion rubles. per month, given the rise in oil prices to almost $80 per barrel,” says Vladimir Miklashevsky, Senior Economist at Danske Bank. This will support the ruble, especially against the backdrop of "compressed foreign exchange liquidity at the end of the year," the analyst adds. With high oil prices, the Central Bank will be able to buy foreign currency to replenish gold and foreign exchange reserves outside the budget rule, Miklashevsky notes.

“Now the Russian markets are in a suspended situation and any optimism comes up against the understanding that there may be sanctions at any moment,” adds Tremasov.

“We are in the range of the neutral rate,” Nabiullina said, noting that we are talking about the short term, associated with an increase in the country risk premium and inflation forecast. The level of the rate at which the achievement of the inflation target and full utilization of production capacities are ensured is considered neutral, and monetary policy does not have either a restraining or stimulating effect on the economy. The assessment of the level of the neutral rate of 6-7% for the medium and long term has not changed.

Elvira Nabiullina (Photo: Mikhail Pochuev / TASS)

“We will assess the feasibility of further raising the key rate, taking into account the dynamics of inflation and the economy relative to the forecast, as well as the risks from external conditions and the reaction of financial markets to them,” Nabiullina outlined the prospects for changing the rate.

Further actions of the Central Bank will be related to the state of the market: the release of the regulator does not give an answer as to how the Bank of Russia sees the long-term trajectory of the rate, says Natalia Orlova. In fact, the Central Bank says that what we see in the market is not just short-term volatility, but some kind of structural change that will have an effect on inflation, the analyst notes. Based on the fact that the Central Bank quickly launched a cycle of rate cuts, it would be logical to assume that it will continue to rise. If the rate remains at 7.5%, this will mean that the Central Bank has succumbed to market panic, Orlova believes.

A further increase in rates is not excluded, everything will depend on the situation with the risks that the Central Bank is trying to stop by raising the rate now, says Romanchuk. It's about about a set of factors: inflation due to the increase in VAT, and the geopolitical situation, and the willingness of international investors to take risks in emerging markets, and oil prices. Based on this set, the Central Bank will act according to the situation, the analyst believes.

In its decision, the Central Bank was guided by two factors: the growth of inflationary expectations and geopolitical risks, so it is difficult to predict how these two aspects will change in the future and whether the rate will increase further, says BCS chief economist Vladimir Tikhomirov. According to the Central Bank’s forecast, annual inflation in the first quarter of 2019 will be at the level of 5.5-6%, and if we take into account the recent practice of the regulator to keep the key rate at the level of “inflation plus 3 p.p.”, then with the acceleration of price growth to 6% rate may be at the level of 9%, says Tikhomirov.

Are loans going up?

Interest rates on loans are unlikely to rise significantly due to an increase in the key rate, says Yakov Yakovlev, senior analyst at Aton for macroeconomics and debt markets, they are more influenced by the bond market. The increase in deposit rates has already taken place in many large banks in late August - early September, recalls Yakovlev.

At the end of August, Sberbank raised deposit rates for the first time since 2014. At that time, the bank stated that at least the interest rates on loans would not decrease, and at the same time predicted that the key rate of the Central Bank would increase by the end of the year. Now Sberbank has not given forecasts regarding changes in interest rates for its products.

The VTB press service said that decisions to maintain or change interest rates would be made by the bank later. The decision of the Central Bank "may affect the cost of attraction", the rates on a number of deposit programs of the bank have already been increased. "On the this moment it is too early to say whether the increase in the key rate will directly lead to an increase in interest rates on loans,” VTB added. The MCB will not significantly change interest rates on loans and "consider options for more attractive offers" on deposits. Alfa-Bank reported that deposit rates had already been raised on 3 September. FC Otkritie Bank is “closely monitoring the development of the market situation and the actions of competitors” and does not exclude the possibility of changing conditions. Promsvyazbank will raise rates on some deposits next week, but the decision to do so was made even before the rate hike by the Central Bank. In terms of lending, PSB intends to focus on market conditions.

The decision of the Central Bank will not have a direct impact on mortgage rates, says Sergey Khestanov, adviser on macroeconomics to the general director of Otkritie Broker. “0.25 p.p. (raising the key rate. — RBC) is too small. Such growth should not affect mortgage rates and mortgage refinancing,” he explains. Dom.RF has not yet begun to make forecasts about the impact of the Central Bank's decision on the mortgage market, saying that the situation is being analyzed.

On September 14, 2018, the Board of Directors of the Bank of Russia decided to raise the key rate by 0.25 percentage points to 7.50% per annum. Changes in external conditions since the previous meeting of the Board of Directors have significantly increased pro-inflationary risks. The Bank of Russia forecasts annual inflation in the range of 5-5.5% in 2019 with a return to 4% in 2020. This forecast takes into account decisions made at the key rate and on the suspension of the purchase of foreign currency in the domestic market within the framework of the budget rule. The Bank of Russia will assess the feasibility of further raising the key rate, taking into account the dynamics of inflation and the economy relative to the forecast, as well as taking into account the risks from external conditions and the reaction of financial markets to them.

Dynamics of inflation. The return of annual inflation to 4% is happening faster than previously expected. Annual consumer price growth rose to 3.1% in August, slightly above the upper limit of the Bank of Russia's forecast. The growth of inflation in August is associated with an increase to 1.9% of the annual growth rate of food prices. This was facilitated by the change in the balance of supply and demand in certain food markets, as well as the effect of last year's low base. There is also an adjustment of prices to the weakening of the ruble that has occurred since the beginning of the year. Most of the annual inflation indicators that characterize the most stable processes of price dynamics, according to the Bank of Russia, show growth.

Inflationary expectations of households and enterprises slightly increased against the backdrop of exchange rate volatility. According to monitoring data from the Bank of Russia, some enterprises may reflect in prices the planned increase in VAT as early as the end of 2018.

The recent weakening of the ruble is due to the outflow of capital due to changes in external conditions. At the same time, the current account balance of the balance of payments remains at a high level due to stable prices for Russian exports and significantly exceeds the volume of payments on external debt in the coming months. Under these conditions, the decision taken by the Bank of Russia to suspend purchases of foreign currency on the domestic market as part of the budget rule will limit exchange rate volatility and its impact on inflation dynamics in the coming quarters.

According to the forecast of the Bank of Russia, which takes into account the decisions made on the key rate and on the suspension of the purchase of foreign currency under the budget rule, the growth rate of consumer prices will be 3.8-4.2% by the end of 2018. Annual inflation will peak in the first half of 2019 and reach 5.0-5.5% at the end of 2019. Annual quarterly consumer price growth will slow to 4% in the second half of 2019. Annual inflation will return to 4% in the first half of 2020, when the effects of the current weakening of the ruble and the increase in VAT will be exhausted.

Monetary conditions. Under the influence of external factors, monetary conditions tightened somewhat. OFZ yields increased significantly. An increase in interest rates in the deposit and credit market began. An increase in the key rate will help maintain positive real interest rates on deposits, which will support the attractiveness of savings and balanced consumption growth.

economic activity. The annual GDP growth rate in the second quarter of this year, according to updated estimates, was 1.9%, which is within the expectations of the Bank of Russia. The Bank of Russia maintains its 2018 GDP growth rate forecast in the range of 1.5–2%, which is in line with the assessment of the potential growth rate of the Russian economy.

In 2019-2021, the forecast for economic growth rates in the baseline scenario has been updated taking into account changes in external conditions and an assessment of the impact on economic dynamics of a combination of fiscal and structural measures planned for the period up to 2024. In 2019, the planned VAT increase may have a slight dampening effect on business activity (mainly at the beginning of the year). Additional budgetary funds received already in 2019 will be used to increase government spending, including investment ones. As a result, according to the forecast of the Bank of Russia, the GDP growth rate in 2019 will be in the range of 1.2-1.7%. In subsequent years, economic growth rates may increase as the planned structural measures are implemented.

inflation risks. The balance of risks has shifted even more towards pro-inflationary risks. The main risks are related to the high uncertainty of external conditions and their impact on financial markets.

Continued growth in advanced market yields, capital outflows from emerging markets and geopolitical factors may lead to continued volatility in financial markets and affect exchange rate and inflation expectations.

Assessment by the Bank of Russia of risks associated with oil price volatility, wages, possible changes in consumer behavior, has not changed significantly. These risks remain moderate.

The Bank of Russia will assess the feasibility of further raising the key rate, taking into account the dynamics of inflation and the economy relative to the forecast, as well as taking into account the risks from external conditions and the reaction of financial markets to them.

The next meeting of the Board of Directors of the Bank of Russia, which will consider the key rate level, is scheduled for October 26, 2018. The time of publication of the press release on the decision of the Board of Directors of the Bank of Russia is 13:30 Moscow time.

For the first time since 2014, the Central Bank raised the key rate by 0.25 percentage points to 7.5% per annum. This is a landmark event: the regulator believes that the time has come to react to the depreciation of the ruble and acceleration of inflation. Why can you sacrifice cheap loans, including mortgages, and moreover, the prospects for economic growth.

In 2013, the key rate in Russia was 5.5%, in an attempt to stabilize the financial system in December 2014, the Central Bank raised it to a record 17% over the past decade. Then the rate gradually dropped until March of this year. This meant that the Central Bank did not see the risks of financial stability and was ready to facilitate the entry of cheaper money into the economy. Now, apparently, the period of "recovery" is coming to an end. The logic of the Central Bank's decision and its consequences are explained by Anton Tabakh, chief economist at the Expert RA rating agency.

— What is the reason for the decision of the Central Bank to raise the key rate for the first time since 2014?

- First of all - the accumulated inflationary risks. In my opinion, two key factors influenced the decision. The first factor is that the world markets have been very shaking in recent weeks. Many central banks (the latest and most drastic - Turkish) have raised rates. If everyone is struggling with volatility by increasing rates, then Russia should join. The second factor is already domestic. The most important news is not a quarter-percent increase in the key rate, but a radical increase in the inflation forecast for the next year and a half by the Central Bank. Accordingly, the market needs to show that the Central Bank is ready to fight inflation. As such a demonstration, a slight increase in the rate was carried out. An additional stimulus was calls from Belousov, assistant to the president for economics, and a number of ministers that it was not worth raising the rate. Under such conditions, the Central Bank had to show who was the boss in the house. That the rates and course are his diocese.

Is the Central Bank trying to prove that it is an independent player?

“We could do without it—for the past four years everyone has known this for sure. As for the pressure on the Central Bank, in any country the Ministry of Economy and the Assistant to the President for Economics or their equivalents advocate greater economic growth even at the cost of high inflation. The Ministry of Finance only cares about the full budget, while the Central Bank always advocates low inflation and, if required by law, a stable exchange rate. AT this case everyone is doing their part. Look at how former employees of the Central Bank, who moved to the government or the Ministry of Economy, begin to make completely opposite statements. But the Central Bank has once again demonstrated that no one can actively influence their role and responsibilities. It's just a job function.

- In Turkey, President Erdogan opposed the increase in the key rate by the Turkish Central Bank, the same thing happened in the United States - Donald Trump was against the increase in the rate by the Federal Reserve System.

- In the United States, the president may be against or for, but the Federal Reserve is independent in its actions. If the president is trying to push too hard, there are enough people in government and business to explain why this should not be done. In terms of influence, the head of the Fed, especially in financial matters, is almost comparable to the president. In Turkey, everything is somewhat different, and there is a risk that the correct actions of the Central Bank will displease the president. But it is more than possible that Erdogan was playing for the public - and his party comrades and business sharks explained why the lira must be quickly stabilized and interest rates raised. On the other hand, perhaps next week we will see that the leadership of the Central Bank has been replaced. Then, by the way, it will hit all the currencies of countries with emerging markets - including the ruble.

- Did the decision of the Turkish Central Bank to increase the key rate affect a similar decision in Russia?

— As I said, the instability in various emerging markets is strongly related to each other. If they sell currency or public debt, then they sell it to everyone. For the largest funds, most often Argentina, Turkey, Russia and Jamaica are in one “basket”.

- If we move away from the key rate, what caused the decision of the Central Bank to moratorium on the purchase of foreign currency until the end of the year? Is it the same as a rate increase?

— This decision was more predictable and was actively discussed by market participants over the past couple of weeks. They extended the decision that was made on the moratorium until the end of September - that they would not specifically and according to the schedule buy foreign currency for reserves. In the meantime, he will take excess rubles from the Ministry of Finance and write currency to his account, within the limits of the international reserves of the Central Bank - there will be a purely accounting operation. This is good for the exchange rate in the sense that it removes the factor that contributed to the weakening of the ruble. And the Central Bank can buy foreign currency for reserves at favorable moments, without being bound by a specific schedule.

— What are the forecasts for the stabilization of the ruble exchange rate?

- No one promises us a stable exchange rate - since November 2014, it has a floating exchange rate. The Central Bank does not officially stabilize the ruble exchange rate at a certain level. On the other hand, the exchange rate affects inflation, which worries the Central Bank. Every 10% change in the ruble exchange rate towards weakening gives +1% to inflation. And 10% towards the strengthening of the ruble reduces inflation - although at a slightly slower rate than 1%. Without an unfavorable external background, the ruble would now be trading at completely different levels. But there is a crisis in emerging markets that is beyond the control of the Russian authorities. There are emotions associated with the tightening of the sanctions regime - this is what contributes to the weakening of the ruble. More than other, often less stable countries with less reserves and margin of safety.

- In the near future, can we expect a further increase in the key rate?

— On Friday, the Central Bank made a very tough statement, which said that they would make decisions on a possible rate increase as the situation with inflation develops. So there will most likely be increases.

- The new policy of the Central Bank is quite tough, it is a departure from a neutral monetary policy.

- Neutral policy - if you carefully read the March and June statements of the Central Bank. It was said that they were going to move to a neutral monetary policy, since inflation is low and the risks of its growth are moderate and predictable. Now it was openly said that it would have to be raised.

In Russia recent years three one of the highest real interest rates of any major country - so the policy is very tight.

— Are there any obviously negative consequences of the decision of the Central Bank?

— The decision will help reduce economic growth, because money will be more expensive. Mortgages will become more expensive, loans both for business and for the population will become more expensive. On the other hand, according to economic theory, low inflation in itself contributes to stabilization, economic growth over long periods. There are big doubts that this is always the case, but in this case, the Central Bank promised to fight inflation - and it is fulfilling its promises.

- Can we say that the volume of consumer loans will decrease?

— The rate is only one of the factors contributing to the demand for consumer loans. For example, the Central Bank recently introduced new regulations that limit the issuance of expensive consumer loans. There is a demand for loans from the population, whose incomes are not growing, but who have been consuming little for a long time. These are all multidirectional processes. But ceteris paribus, the increase in rates will help reduce consumer lending.

- That is, it will not directly affect the well-being of the population?

- It will. But how much - it must be considered. Our population is different. Those who take loans will be affected badly. And those who have deposits will be fine - the rates have already begun to creep up. For those who have free money, it's very good. They have the opportunity to get a good yield on bonds - including the most reliable, government bonds. Rarely are economic actions that are bad or good for everyone.

The Central Bank raised the key rate to 7.5% per annum. Against the backdrop of a constant decline that has occurred over the past two years, Elvira Nabiullina's decision looks like a signal of intent, rather than decisive action. But what does this mean for us ordinary citizens?

Economists interviewed by the site believe that one of the main reasons is the sharp jumps in the ruble exchange rate. The financial market had to be supported, and the Central Bank decided to start very carefully.

Symbolic hesitation?

The Central Bank was in difficult situation. On the one hand, he must, and on the other hand, issue inexpensive loans. One with the other in the current state of the Russian economy is almost impossible. And it is with this that such a cautious step upwards is associated.

“The fluctuation of the key rate of 0.25% is symbolic, more like verbal intervention, when an official says: “Sell dollars, the ruble will not fall.” Because when the Central Bank had to increase the rate, it raised it to 17%. And it was serious, because at such a rate it was possible to get an almost zero loan and earn money, and now it seems that they are simply showing us that they are ready to go for an even greater increase. - says Boris Kheifets, professor at the Financial University under the Government of Russia.

Per last days the ruble has fallen in price by about 10%, and an attempt to strengthen it in this way is unlikely to change the situation for a long time. Especially now, when the threat of sanctions against Russian ones has increased, and investors are leaving the ruble zone and are actively buying dollars.

Did the financial regulator decide to regulate?

The head of the Central Bank, Elvira Nabiullina, has spoken many times about the need to begin to control the financial market, and it seems that this process was launched today. The timing is well chosen, because the pressure on Russia also slows down the activity of business.

“There was a cautious increase of a quarter percent. Perhaps this is an attempt to maintain a balance between the regulation of the markets and the support of the ruble. - says Vladimir Oleichenko, senior researcher at the Institute of World Economy and International Relations of the Russian Academy of Sciences. - In addition, soon, in January, the factor of increasing VAT by 2% will work, and this will accelerate the price increase even more. And the Central Bank will have to deal with this, especially when the increase in the cost of transportation and the rise in the cost of business working capital will directly affect the price tags in stores.”

Why bet?

The Central Bank does not have a lot of tools to change the situation on the currency markets. And according to experts, using such "heavy artillery" as a key rate, he is counting on. Especially against the background of the fact that the year is coming to an end, and economic indicators are lagging behind the desired ones.

“In addition to insufficient economic growth, the authorities are considering the threat of a financial crisis. It is possible that some measures have already been taken to reduce the possibly impending crisis. Especially now, when more and more new sanctions are being introduced, fears that the ruble exchange rate fluctuations are provoked on purpose may come true. And a slight increase in the rate is an attempt to smooth out the negative effect.” - says economist Andrey Suzdaltsev

A small rate increase cannot stabilize sharp fluctuations in the ruble exchange rate. And today, when the Russian economy is highly dependent not only on objective indicators, but also on the "emotional factor", that is, criticism from other countries, the actions of the Central Bank really look like a warm-up before taking serious measures.

MOSCOW, September 14 - RIA Novosti. The Bank of Russia raised the key rate by 0.25 percentage points to 7.5% per annum, follows from a press release from the regulator.

This is the first time this has happened in the last four years, and since 2014 the figure has only declined.

This year, the Central Bank twice reduced the rate - in February and March - by 0.25 percentage points, and then took a break.

In June, the head of the regulator, Elvira Nabiullina, said that the likelihood of a transition to a neutral monetary policy had greatly decreased. At the same time, the Central Bank estimated the neutral key rate with a target inflation of four percent at six to seven percent, that is, two to three percentage points above the target.

Last week, the financier said that the Central Bank sees a significant number of factors that speak for the preservation of the indicator, but an increase cannot be ruled out.

Nevertheless, the majority of analysts polled by RIA Novosti expected that the Bank of Russia would prefer to keep the key rate, despite the volatility of the ruble.

key rate

Key rate - minimum interest rate, according to which the Central Bank provides loans to commercial banks for a week. It is also the maximum rate at which the regulator is ready to accept deposits from banks. Its size affects the rate of inflation.

The Bank of Russia introduced the key rate as an instrument of monetary policy on September 13, 2013. This was done as part of the transition to an inflation targeting regime to increase transparency.

Over the course of 15 years, the rate has changed. Two years ago it was 11 percent per annum. By September 2016, it decreased by one percent, and a year ago it was 9.75 percent.