Russia to hold interest rates at 16% for third meeting running: Reuters Poll

By Elena Fabrichnaya and Alexander Marrow

MOSCOW (Reuters) - Russia will keep interest rates on hold at 16% for the third meeting running on Friday, a Reuters poll showed on Monday, with inflation's only gradual slowdown preventing the central bank from easing borrowing costs more quickly.

Widespread labour shortages, rouble weakness, strong consumer demand and hefty government spending to fund what Moscow calls its "special military operation" in Ukraine, all drove prices higher in 2023 and though some of those pressures have eased, the bank has not yet managed to start softening monetary policy.

All 26 analysts and economists polled by Reuters on Monday predicted that the Bank of Russia would keep its key rate at 16% at Friday's meeting.

Inflation is slowing down, but more slowly than the central bank needs if it is to reach the 4% target by year-end, said Mikhail Vasilyev, chief analyst at Sovcombank.

"Therefore, the Bank of Russia may prefer to add monetary policy tightness now, to try and return inflation to target by year-end," Vasilyev said, putting the chances of a hike at 30%.

All analysts expect rates to come down this year, though some said the rate-cutting cycle may start later than they had initially forecast.

"All the intrigue lies in the regulator's messages and guidelines for future meetings," said BCS analysts.

Several analysts drew attention to pressure from labour shortages, with unemployment at a record low 2.8%.

"Competition for workers is intensifying in the labour market, which limits the economy's production capacity," said Igor Rapokhin, an FX and money market strategist at SberCIB Investment Research. "So more time is needed in order for the impact of tight monetary policy to become clearer."

He said the central bank may be able to reduce rates to 13% by year end.

The central bank will update its year-end forecasts on Friday. An upward revision to Russia's economic growth forecast is expected, especially after the International Monetary Fund increased its 2024 growth forecast for the Russian economy to 3.2% from the 2.6% projected in January.

In late February, 2022 Russia ramped up its benchmark rate to 20% in an emergency move after Moscow despatched tens of thousands of troops to Ukraine, which led the West to impose increasingly wide-ranging sanctions on Russia.

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The key rate was gradually cut to 7.5%, before the bank started hiking again in July 2023. It held rates at 16% in February and March after the last cut in December.