Tariff plan: the market expects the key to remain at the level of 21%
The Central Bank will leave the key rate at 21% at its meeting on April 25, according to Izvestia's consensus forecast. Although inflation is not accelerating, it has remained at an elevated level of 10% for several months in a row, which will force the Bank of Russia to maintain the status quo. The escalating trade wars have now become an additional risk to the overall price level. On the other hand, there are positive aspects: the ruble has been strengthening for several months in a row, and negotiations allow us to count on progress in the conflict in Ukraine and in easing sanctions. At the same time, the Russian economy has been living in high rates for six months now, which has led to a slowdown in business activity. How the Central Bank will maneuver between curbing inflation and economic growth is in the Izvestia article.
How the Central Bank will change the key in April 2025
At its meeting next Friday, April 25, the Bank of Russia will keep the key rate at 21% for the fourth time in a row, 13 out of 15 analysts and market participants polled by Izvestia are confident. At the same time, one expert suggested that the rate would be reduced by 1 percentage point to 20%, while another expert believes that the Central Bank will act harshly and raise the key rate to 23%.
At the last press conference on the key issue in March, the head of the regulator, Elvira Nabiullina, said that the likelihood of an increase had decreased. But she still hasn't completely gone away. Later, on April 9, during her speech in the State Duma, she stressed that the Bank of Russia would approach the key reduction carefully. Just a week before the meeting, on April 16, the Central Bank even stressed that it was ready to consider an increase if inflation did not continue to reach the 4% target.
Despite the fact that the tone of the Central Bank's statements has generally softened since the March meeting, there is still no talk of reducing the key rate, says Vladimir Evstifeev, head of Zenit Bank's analytical department. He added: the high rate is designed to cool the growth rate of the economy and return it to a more balanced trajectory. It motivates people to save more and buy less, the specialist said.
— Tight monetary policy certainly limits inflation. At the same time, as we see in the example of 2024, this rigidity may not be enough to break the inflationary trend, since price dynamics depends not only on the monetary policy of the Central Bank, but also simply on the limited supply of goods and services," said Denis Popov, managing expert at the PSB Center for Analytics and Expertise.
Inflation remains high. Despite the fact that, according to weekly data from Rosstat, from April 8 to April 14, it slowed down from 0.16% to 0.11%, in annual terms, prices increased from 10.25% to 10.34%.
Why is the Bank of Russia not going to lower the rate yet
A number of factors are keeping the key rate at a record high. During the last meeting in the State Duma, Elvira Nabiullina paid close attention to the tectonic changes in world trade. This is a new significant risk that needs to be taken into account, said the head of the Central Bank.
Because of this, oil prices have already fallen. OPEC and the International Energy Agency (IEA) have also lowered forecasts for demand for raw materials, said Olga Belenkaya, head of the Macroeconomic Analysis Department at Finam. For Russia, this means, first of all, the risks of lower prices for commodity exports, which may lead to a weakening of the ruble, a decrease in budget revenues and an acceleration of inflation.
All the previous reasons why the Bank of Russia will not lower the rate for the time being remain. For example, low unemployment (2.4%) and high wage growth, recalled Mikhail Vasiliev, chief analyst at Sovcombank. In addition, the rigidity of the Bank of Russia's policy is influenced by the indexation of tariffs and fees at a rate higher than inflation — starting from July 1, utility bills will increase by 12%.
The measures taken to tighten monetary policy are yielding results, but more slowly than the regulator would like. However, there are already prerequisites for slowing down price growth: weak lending, a strong ruble, and normalization of budget expenditures, Mikhail Vasiliev noted.
Lending is slowing down not only for individuals, but also for businesses, which slows down business activity. However, even if the rate starts to be lowered, it will definitely be done gradually (by 1-2 percentage points). But the rates will still remain protective in order to truly support businesses and, for example, mortgage borrowers.
— Now we can say that inflation has entered a controlled phase, but in this situation it is dangerous to tighten the screws unnecessarily. The Central Bank is literally balancing on a very fine line, trying to simultaneously suppress inflation and prevent the economy from falling into recession," says Nikolai Kuznetsov, associate professor of Finance and Credit at GUU.
Back in February, Maxim Reshetnikov, Minister of Economic Development, stated that the economy had begun to cool down, and in such important sectors as the food industry, chemical industry, woodworking, and mechanical engineering. One of the main reasons is expensive borrowed funds, which do not allow the business to invest in expansion. Although two months have passed since that statement, the Central Bank is still in no hurry to take measures to support the economy. However, in principle, the regulator considers such dynamics to be positive, since the economy is "coming out of a state of overheating."
When will the Central Bank begin to ease its policy
The weekly slowdown in inflation is largely due to the strengthening of the ruble, which has grown by almost 20% since the beginning of the year, according to the Central Bank, to 82.5 rubles/$. This is due to the Russian-American negotiations against the background of a possible de-escalation of the Ukrainian conflict, said Olga Belenkaya from Finam. But so far the negotiations have not had concrete results, that is, it is difficult to call the main support factor stable.
— The Central Bank's policy is based on stable trends, fundamental factors, hard facts and a conservative approach to risk assessment. Maintaining this approach is critically important for a confident return of inflation to 4% in 2026, regardless of the scenario of external conditions," said the head of the Central Bank.
The Central Bank's confidence in the sustainability of disinflationary trends may be formed only by July, Viktor Grigoriev, chief analyst at Bank Saint Petersburg, expects. Judging by the negotiation processes regarding de—escalation and duties, clarity and specificity on the nature of external conditions will appear closer to the middle of the year.
According to him, then it will be more clear how the increased indexation of tariffs has affected consumer prices, as well as how the annual trajectory of budget execution develops. So far, the most likely scenario is the beginning of monetary policy easing no earlier than July, bringing the key rate to 17% by the end of the year.
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