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Russia’s key rate seen peaking at 7% this year before cuts return in 2022: Reuters poll – Metro US

Russia’s key rate seen peaking at 7% this year before cuts return in 2022: Reuters poll

FILE PHOTO: An aerial view shows the skyline of the
FILE PHOTO: An aerial view shows the skyline of the capital Moscow in Russia

MOSCOW (Reuters) – Russia will raise its key interest rate to 7% by the end of 2021 to rein in inflation that is hovering near a five-year peak, before returning to rate cuts in 2022, a Reuters poll showed on Friday.

The commodity-dependent economy has already returned to its pre-pandemic size after a 3% contraction in 2020, its sharpest in 11 years. But high inflation and a weak rouble are clouding the outlook, prompting the central bank to tighten monetary policy.

The consensus forecast of 18 analysts polled in late July suggested gross domestic product will grow 3.9% this year, its fastest pace since 2012 and an improvement from 3.8% predicted a month ago. Expectations for 2022 growth were raised to 2.4% from 2.3%.

The central bank, which raised its key interest rate for the fourth time this year in July by 100 basis points to 6.5%, its biggest hike since 2014, is expected to raise rates again by the end of this year. The key rate is seen ending 2021 at 7% compared with 6.25% projected a month ago.

The rate is seen steadily returning to 6.25% by the end of 2022.

Higher rates are aimed at taming inflation by making lending more expensive and bank deposits more attractive.

Inflation is a sensitive issue in Russia ahead of a parliamentary election in September, as it further squeezes real incomes hurt by the pandemic.

Even with the projected rate hikes, annual inflation is seen climbing to 6.7% in the third quarter, which would be its highest since August 2016, before ending the year at 6%, up from 5.4% predicted in the previous poll. The central bank targets inflation at 4%.

The rouble’s outlook changed slightly, suggesting geopolitical factors will continue to drag on the currency.

Analysts expected it to trade at 73.75 to the dollar and 86.10 to the euro 12 months from now, compared with 73.00 and 89.00 respectively in the previous poll.

Russia’s official exchange rates for Friday were at 73.19 per dollar and 86.86 per euro.

Most of the forecasts in the Reuters poll were based on at least 10 individual projections.

(Additional reporting by Elena Fabrichnaya; Editing by Mike Harrison)

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