The Bank of Russia will keep interest rates on hold at 7.5% next week as inflation remains above target, propelling the country’s economy into a second year of contraction in 2023, a Reuters poll showed on Tuesday.
Russia’s economic landscape changed drastically after Moscow deployed tens of thousands of troops to Ukraine on February 24, triggering sweeping Western restrictions on the energy and financial sectors and prompting scores of companies to exit the market.
Initial expectations of a double-digit economic slump in 2022 proved overblown, but analysts expect a prolonged deterioration in Russia’s economic health, forecasting a 2% contraction in gross domestic product (GDP) this year, after an estimated 2.5 contraction % had occurred in 2022.
The average of 17 analysts and economists polled in late January indicated that the Bank of Russia will keep interest rates on hold at 7.5% at the February 10 board meeting as it seeks to bring inflation back to its target of bring 4%.
Inflation expectations, a key indicator that the central bank pays close attention to ahead of meetings, fell to 11.6% in January but remains elevated. The central bank said it sees inflation risks rising this year.
Analysts’ expectations of a 2% contraction in GDP this year contrast with that of the International Monetary Fund, which on Tuesday said Russia’s economy would grow 0.3%.
The average of forecasts in the survey indicated that the ruble would trade at 73.00 against the dollar a year from now, compared to a rate of 72.50 predicted by analysts earlier this month. Tuesday’s official exchange rate was 69.59 rubles per dollar.
“Forex sentiment is currently negative, increasing the likelihood of short-term moves towards a weaker ruble,” said analysts at Rosbank Research.
“Continued pressures on the geopolitical front and concerns over the impact of the oil product price cap are having their say,” Rosbank added.
The central bank was expected to gradually cut interest rates to 7.13% by the end of the year, with forecasts ranging from 6.50% to 8.00%, according to the survey, versus 7% in the previous survey.
Annual inflation is expected to end at 5.8% this year, the same as in the previous survey and well below last year’s double-digit increase.
Most forecasts in the Reuters poll were based on at least 10 individual forecasts.
Source: Reuters (reporting by Alexander Marrow with additional survey by Elena Fabrichnaya; editing by Bernadette Baum)
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