Russia seen hiking rates by 200 bps to 18% in July as inflation quickens

By Alexander Marrow and Elena Fabrichnaya

MOSCOW (Reuters) - The Russian central bank will hike rates by 200 basis points to 18% later this month as it tries to quell stubbornly high inflation that analysts now expect to end 2024 well above the bank's 4% target, a Reuters poll showed on Tuesday.

The bank has become increasingly hawkish, promising high rates for a long time, as inflation has continued to quicken. The economy ministry reported annual consumer inflation at 8.61% as of June 24.

Ten of 16 analysts and economists polled by Reuters in late June and early July predicted that the Bank of Russia would raise its key rate to 18% on July 26. Three analysts forecast a hike to 17.5% and three predicted the bank would limit its monetary tightening to a 100-basis-point increase.

"Domestic demand, lending and inflation are not slowing down, despite the 16% key rate, so the Bank of Russia has to tighten monetary policy," said Mikhail Vasilyev, chief analyst at Sovcombank, predicting a 200 basis point hike.

"In general, borrowers should be prepared for money in the economy to remain expensive for a long time, and likely get even more expensive."

The consensus forecast showed that analysts expect rates to end the year at 17.75%, up from 16% in the previous poll.

"The absence of explicit signs of slowing inflation is forcing the central bank to maintain a tight course," said BCS World of Investments analysts.

Year-end inflation was forecast sharply higher at 6.4%, up from 5.6% in the previous poll and well above the central bank's target and expectation. Annual inflation stood at 7.4% in 2023, down from 11.9% in 2022.

The poll showed that economists now expect Russia's gross domestic product to grow 3.1% this year, marginally higher than last month's poll.

Analysts expect the rouble, currently trading at about 87 per dollar, to weaken to 97.5 over the next year.

(Reporting and polling by Alexander Marrow in London and Elena Fabrichnaya in Moscow; Editing by Sharon Singleton)