Sunday, October 17, 2021

Russia needs to raise rates further as inflation hits highest since 2016: Analysts Survey

Moscow-Russia will need to raise interest rates further to combat extremely high inflation, which has exceeded forecasts and shows little sign of slowing, a Reuters poll showed on Thursday.

Russia’s export-focused economy has already reached pre-pandemic levels and is on track to grow. But the simultaneous correction, coupled with global inflation and a weaker ruble, is pushing up consumer prices, worsening living standards.

A unanimous forecast from 22 analysts polled at the end of September suggested the central bank would raise its key rate for the sixth time this year to 7 per cent at its October 22 board meeting.

Some analysts said the central bank could raise as much as 7.25 per cent to address inflation, which rose to 7.3 per cent by the end of September, flying at levels more than five years ago and well above the 4 per cent target. Was.

“It appears that Russia is now dealing with the consequences of additional social payments distributed by the government ahead of the parliamentary elections held on 17-19 September,” Ing said.

President Vladimir Putin ordered one-time payments to pensioners and the military ahead of the election, boosting inflation expectations.

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The consensus forecast for inflation for 2021 year-end rose to 6.5 per cent from 6.0 per cent seen at the end of August.

The higher rates are designed to reduce inflation, a sensitive issue in Russia, and should support the ruble by making investments in high-yielding ruble assets more attractive.

Analysts expect the ruble to trade for 12 months at $72.70 and 86.00 euros, compared to forecasts of 74.00 and 89.00 respectively in the last poll.

“We remain bullish on the ruble due to infrastructure improvements,” said the Oxford Economics research firm.

“However, given the evidence of accelerating net private capital outflows, we expect USD/RUB, which is currently at around 73, to increase by about 3 percent against the USD in the remainder of 2021.”

Despite the higher rates, the economy was still on track to grow at 4.3 per cent this year, the fastest in a decade, the survey indicated, confirming estimates from a month earlier.

Most of the forecasts in the Reuters poll were based on at least 10 individual estimates.

by Andrey Ostrokho

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This News Originally From – The Epoch Times

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