Russian Central Bank bases Sept signal on monetary policy on high probability of another rate hike - meeting summary

MOSCOW. Sept 25 (Interfax) - The Central Bank of Russia proceeded from the high probability of another hike in the key rate going forward when choosing the wording of the signal on the future direction of monetary policy in the regulator's statement following the meeting of the board of directors in September.

The Central Bank's board of directors decided on September 13 to hike the key rate by a percentage point from 18% per annum to 19% pa. Having chosen this option rather than the tougher scenario of 2 percentage points, the CBR sent a hawkish signal to the market that the regulator "allows for the possibility of hiking the key rate at the next meeting."

The CBR substantiated the decision in the summary of the discussion published on Wednesday. "When choosing between a strict and a moderately strict signal, the participants noted the high probability of a further hike in the key rate," the CBR said.

Given the circumstances, the board of directors considered it more appropriate to be clear that the Central Bank allows for the possibility of hiking the key rate at the next meeting. "Hiking the key rate in conjunction with a strict signal would more effectively 'adjust' the necessary degree of tightness of monetary conditions. A strict signal supports the expectations of economic agents about the long-term preservation of tight monetary conditions," the CBR said.

As for the degree of the rate hike, the more moderate option was substantiated by the fact that it is still not possible to say confidently that the medium-term inflation trajectory has deviated significantly from the July baseline forecast despite higher-than-expected inflation in July-August, the CBR said. Hiking the key rate to 19% pa was more in proportion to the revised assessment of current inflationary pressure, the CBR said.

The participants at the meeting also said that inflation has exceeded the CBR's expectations in the third quarter of 2024.

"High price pressure is largely the result of overheating observed in the economy in the first half of 2024. The tightening of monetary policy in recent months has not yet been fully reflected in price dynamics owing to time lags. Inflationary pressure also turned out to be higher in July-August than the Central Bank had estimated at the time of the decision on the key rate in July. The participants agreed that it is highly likely that price growth rates will exceed the Central Bank's July forecast in 2024. The participants at the meeting believe that the tightness of monetary conditions to curb inflation to the target in 2025 should be higher given the revised assessment of current price pressure," according to the CBR's summary.