Central Bank of Russia hikes rate 2 pp, hints at more tightening in Dec as target becomes more distant

MOSCOW. Oct 25 (Interfax) - The Central Bank of Russia's board of directors on Friday decided to raise the key rate from 19% to 21% per annum, significantly increasing the inflation forecast for the current year and acknowledging that it will take longer for inflation to return to target.

This is the third rate increase in a row after rises of 2 pp in July and 1 pp in September.

Analysts did not doubt that the Central Bank would raise the rate again at its penultimate monetary policy meeting of the year, although they differed over how much. Most expected the rate to go up 1 pp to 20%, and a still hawkish signal about the monetary policy going forward. Some said the rate might be hiked by 2 pp, but those with a high hit ratio were in the minority.

Further tightening was anticipated, given the signal the CBR gave after its September meeting. "Further tightening of monetary policy is required to resume the disinflation process, reduce inflation expectations, and ensure the return of inflation to the target in 2025. The Bank of Russia holds open the prospect of increasing the key rate at its upcoming meeting," it said at the time.

Central Bank Governor Elvira Nabiullina said before the start of the "week of silence" that the regulator's decision was not predetermined, and fresh data from Rosstat, published on Wednesday, added weight to expectations of more tightening: weekly inflation reached its highest rate since the beginning of October at 0.2%. Household inflation expectations in October increased as much as 0.9 pp, to 13.4% from 12.5%, and the consensus based on the forecasts of professional analysts surveyed by the Central Bank also increased significantly, from 7.3% to 7.7% for 2024 and from 4.8% to 5.3% in 2025.

The new signal is essentially the same, its only difference being that, taking into account the new inflation forecast for next year, the time frame for achieving the target has been omitted. "Further tightening of monetary policy is required to ensure the return of inflation to the target and reduce inflation expectations. The Bank of Russia holds open the prospect of increasing the key rate at its upcoming meeting," the regulator said this time. The next meeting is in December.