The Bank of Russia will raise its key rate by 50 bp at a meeting on Friday this week, economists at Goldman Sachs predict. At the same time, they warn: there is a significant risk of a 75 bp increase to reduce inflationary pressures and anchor inflation expectations, given the latest inflation data and the regulator’s commitment to outstripping tightening.
Goldman’s model indicates that inflation will remain slightly above 6% through September and decline to just above 5% by the end of the year. The current data coincide with the position of the CBR that the economy is growing too fast and inflationary pressures are increasing, requiring outstripping tightening. The CBR is concerned about the growth of inflationary expectations of enterprises above 20%.
The inflationary shock will be temporary, and inflation will return to 3% YoY by the middle of next year, provided that the ruble dynamics is in line with the forwards. The lead cycle of tightening to anchor inflation expectations is likely to continue to support the ruble and lead to a flattening or even inversion of the curve.
The inflation statistics were published the day before. Inflation in the RF in May amounted to 0.74% mom, Rosstat reported on Monday.
The forecast was 0.6% m / m. Core inflation in May amounted to 0.82% m / m and 6.04% y / y; forecast 0.5% m / m and 5.7% y / y.
Another reputable Western bank, Morgan Stanley, revised its forecast on the decision of the Bank of Russia at a meeting on Friday, published last week, and now expects a tightening by 50 bp. instead of 25 bp due to accelerating inflation. According to the bank’s analyst Alina Slyusarchuk, the data on inflation indicate that long-term factors are behind its surge, which shifts the balance of factors towards a more significant tightening.
A week earlier, there is a chance of a 50 bp hike. was estimated at 40%, but the rise in inflation increases this probability. Also, the rhetoric of the CBR is likely to suggest further tightening. Economic growth is no longer a cause for concern, with data showing a rapid recovery in the second quarter, Morgan Stanley said.