Bank of Russia's key rate may reach 7% by end of 2021, experts say

"The decision was unexpected, as the Bloomberg consensus, the markets and we were waiting for an increase in the indicator by 50 base points," analysts at VTB Capital said

MOSCOW, September 10. /TASS/. The Bank of Russia may raise its key rate up to 7% by the end of 2021, say experts interviewed by TASS. Some of them even do not rule out an increase up to 7.25-7.5%.

On September 10, 2021, the Bank of Russia’s Board of Directors decided to raise the key rate by 25 base points to 6.75% per annum. The regulator also made it clear that there is a possibility of a further increase at future meetings.

“The decision was unexpected, as the Bloomberg consensus, the markets and we were waiting for an increase in the indicator by 50 base points. At the same time, the signal of the regulator became softer. Now the Bank of Russia admits the possibility of further increases against the previous signal, it will assess the feasibility,” analysts at VTB Capital said.

Such a comment by the regulator signals a possible pause in the row of tightening interest rate policy, says Evgeny Koshelev, head of the office for market research and strategy at Rosbank. According to him, the decision to increase the rate by only 25 base points gives the impression that the Central Bank has reached the optimal level of the key rate for curbing inflationary processes and sees the remaining risks insignificant.

Taking into account the continuing inflationary pressure, experts agree that the cycle of raising the key rate will stop no earlier than at the level of 7% per annum.

In particular, VTB Capital and Sovcombank are expecting another 25 base points increase in October, while the latter do not exclude an increase in the rate to 7.25% by the end of the year. The NKR expects the rate to rise by another 25 base points by the end of the year and expand the range of its possible movement in 2022 to 6-7.5% under the baseline scenario.

Mikhail Vasiliev also believes that following the key rate, other rates in the economy will rise, including rates on deposits, as well as on consumer and mortgage loans. “Therefore, we believe that now is a good time for borrowers to raise new debt or refinance old debt at historically low rates,” he added.

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