The CBR hiked the key rate by 100 bps to 13%

RUSSIA ECONOMICS - In Brief 17 Sep 2023 by Evgeny Gavrilenkov

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The Board of Directors of the Russian Central Bank decided to raise the key rate once again on September 15 and quoted the usual reasons behind this move. Among those are elevated inflation (i.e., above the 4% target), high inflation expectations (the CBR itself expects inflation to move from the current 5.15% y-o-y to 6-7% by year end), pressure on the ruble from rising credit activity, expansionary budgetary policy, and some other. Meanwhile, the CBR mentioned that even foreign importers of the Russian products preferred not to sell FX on the Russian market and buy rubles needed for transactions, but to borrow rubles as in some cases, such as gas exports to unfriendly countries, foreign buyers are not allowed to pay in unfriendly currencies. The CBR also pointed to the same behavior of exporters – while expecting the ruble to weaken, Russian exporters also preferred not to sell FX while awaiting a weaker currency. To finance their domestic transactions, they also preferred borrowing in rubles. This argument, however, doesn't seem solid as it appeared to be a temporary effect. Indeed, after the previous rate hike in August the ruble stabilized and its further massive depreciation is not on the agenda. Hence, there is not much sense any more to borrow rubles for such transactions. At the same time, consumer lending continued to soar, therefore overheating domestic demand and fueling growth in imports. But even in this case, a previous rate hike to 12% seemed sufficient, as imports stopped growing m-o-m and stabilized at around $25 bln in June and July. It even declined from $26 bln in May. Trade surplus and the current account already slightly widened in August having ...