Bank of Russia to keep benchmark rate at 16% on Friday, tighten rhetoric: Reuters poll

By Alexander Marrow and Elena Fabrichnaya

MOSCOW (Reuters) - The Bank of Russia is likely to keep its benchmark interest rate at 16% on Friday but tighten its rhetoric, a Reuters poll showed on Monday, although a quarter of economists leaned towards a hike as the bank grapples with stubborn inflation.

The bank has become more hawkish in recent weeks, repeating several times that rates will need to stay high for a long time to bring inflation down to its 4% target. A disinflationary trend in Russia ended in April, the bank said last week.

Eighteen of 24 analysts and economists polled by Reuters in late May and early June predicted that the Bank of Russia would keep its key rate at 16% on June 7, while the other six forecast a hike to 17%.

"I expect the rate to remain at 16% and the rhetoric to tighten," said Irina Lebedeva of Uralsib. "An increase at the July meeting seems more likely."

Mikhail Vasilyev, chief analyst at Sovcombank, said a hike was slightly more likely than a hold.

"Inflation has stopped slowing, so the Bank of Russia will likely add monetary tightness to cool the increased demand in the economy," he said.

"Borrowers should be prepared for money in the economy to remain expensive for a long time and probably, that it will get even more expensive."

The consensus forecast showed that analysts no longer anticipate any monetary easing this year, expecting rates to end the year at 16%, up from 13.5% in last month's poll.

A cut in the second half of 2024 seems unlikely given that households' inflation expectations increased in May after four months of decline and pro-inflationary risks of labour shortages and higher lending remain, said Anton Pustovoitov of First Asset Management.

Analysts' year-end inflation forecast rose to 5.6% from 5.4% in early May, still higher than the central bank's target figure. Annual inflation stood at 7.4% in 2023, down from 11.9% in 2022.

The poll showed that economists now expect Russia's gross domestic product to grow 3% this year, marginally higher than last month's poll and above the economy ministry's 2.8% forecast.

The ministry's stress scenarios envisage GDP and real income growth almost grinding to a halt next year and the rouble weakening to 107 against the dollar as investments and oil prices fall, according to documents seen by Reuters.

Analysts expect the rouble, currently trading at about 92 per dollar, to weaken to 97 over the next year, a slight improvement on the previous poll's prediction.

(Reporting and polling by Alexander Marrow in London and Elena Fabrichnaya in Moscow; Editing by Hugh Lawson)