MOSCOW (Reuters) - The Russian central bank is likely to hold rates or raise them only marginally over the next year, taking its time to assess the inflation pattern and weigh the risk of further sanctions against Moscow, a Reuters monthly poll showed on Wednesday.
Russia raised rates for the first time since 2014 in September in response to a falling rouble and threats of more U.S. sanctions. A planned tax increase and the lingering risk of sanctions suggest rates will remain higher rather than lower.
The central bank is expected to hold its key interest rate at 7.50 percent until the end of 2019, the poll of 23 analysts and economists showed.
This is a slight shift in expectations from last month’s poll, which suggested the central bank would keep its main rate on hold until the end of the third quarter of 2019.
Inflation, which is the central bank’s main remit, has been on the rise in recent months due to the weaker rouble, rising petrol prices and consumers’ expectations that it will move even higher after a planned increase in value-added tax from 2019.
The central bank is unlikely to consider easing monetary policy before all inflationary factors have filtered into consumer prices, said analysts at Rosbank, a subsidiary of Societe Generale.
Annual inflation is now seen at 3.9 percent by the end of this year, nearing the central bank’s 4.0 percent, up from 3.8 percent predicted in the previous poll.
“The scenario of holding the key rate is the most optimal one from the point of view of balancing the monetary policy target and the task of supporting economic growth in Russia,” said Denis Popov, an analyst at Zenit Bank.
Other analysts who took part in the poll said the central bank would need a higher rate to keep inflation under control.
“We see another 25 basis point rate hike coming in the fourth quarter of 2018, given the CBR’s sensitivity to market volatility, which is likely to persist,” Morgan Stanley analysts said.
“Then we would expect the key rate to be kept on hold at 7.75 percent until the fourth quarter of 2019, when an inflation reversal would allow for the start of an easing cycle.”
But the risk of more U.S. sanctions over what Washington calls Russia’s “malign activities” may require more action from the central bank, analysts predict.
“The possibility of new sanctions is a major unknown factor,” Renaissance Capital analysts said.
“In case of material U.S. sanctions, we would see the CBR being forced to hike by more,” Morgan Stanley said.
The rouble’s future also remains vulnerable to geopolitical risks.
In one year from now, the rouble is seen at 65.00 versus the dollar and at 77.07 against the euro, the October poll showed. That compares to 62.31 and 78.21, respectively, predicted in the September poll.
On Wednesday afternoon, the rouble traded at 65.75 against the dollar RUBUTSTN=MCX and at 74.52 against the euro EURRUBTN=MCX.
Additional reporting by Zlata Garasyuta and Elena Fabrichnaya; Editing by Gareth Jones