Bank of Russia expected to hold key rate at 14% in September

MOSCOW, September 9. /TASS/. The Bank of Russia’s Board of Directors may keep the key rate unchanged at 14% per annum at its upcoming meeting on September 11, according to 18 of 19 experts surveyed by TASS. Analysts noted that accelerating underlying inflation, fuel shortages, a weaker ruble, and uncertainty over budget parameters are limiting the scope for further monetary policy easing.

At its previous meeting in July, the Bank of Russia cut the key rate for the fifth consecutive time since the beginning of the year, lowering it by 0.25 percentage points to 14% per annum. The regulator said that the acceleration in price growth during the summer months was largely attributable to one-off factors, while underlying inflation indicators remained within an annualized range of 4-5%. At the same time, the Bank of Russia raised its 2026 inflation forecast to 6-7% and noted the need for a more gradual reduction in the key rate.

In late August, Bank of Russia Deputy Governor Alexey Zabotkin noted that the room for a rate cut had already narrowed in July and that further decisions would depend on the actual situation. Adviser to the Bank of Russia Governor Kirill Tremasov also said that the situation on the fuel market should become clearer and more predictable by the regulator’s October meeting, while it was still too early to draw conclusions.

According to analysts expecting a pause, the available data taken together point toward keeping the rate at 14%. A 25-basis-point cut remains the alternative.

"The balance of factors currently does not favor further easing. The acceleration in core inflation that began in July continued in August. Judging by weekly data, the current pace of price declines is not yet sufficient to reach the 4% target. Corporate lending has accelerated again. M2 money supply growth remains at around 13%, compared with the Bank of Russia’s forecast range of 7-12%, while the ruble has weakened by more than 8% against the dollar and the yuan since the beginning of August," portfolio manager at Alfa Capital Management Company Alexey Kornev said.

According to him, the situation on the fuel market remains an additional pro-inflationary factor. "At its previous meeting, the regulator proceeded from the assumption that the fuel shortage was temporary, but it cannot yet be said that the situation has fully normalized," Kornev added.

Inflation limits room for rate cuts

Sovcombank Chief Analyst Mikhail Vasilyev pointed to an acceleration in both headline and core inflation. "The Bank of Russia reported that seasonally adjusted inflation stood at 11.6% in July after 11.4% in June, while core inflation rose to 7% in July from 5.3% in June. Judging by weekly data, we forecast that seasonally adjusted inflation will be around 7% in August. As a result, three-month seasonally adjusted inflation for June-August is currently running at around 10%," he noted. According to Vasilyev, another argument in favor of a pause is money supply growth of around 13% year-on-year, exceeding the Bank of Russia’s 7-12% forecast.

Olga Belenkaya, head of macroeconomic analysis at Finam Financial Group, believes that the main arguments in favor of a pause could include insufficient data to reassess the future rate trajectory and a certain increase in pro-inflationary risks. "The gradual pass-through of higher transportation costs and the weaker ruble into prices, the Bank of Russia’s conclusion that the underlying component of inflation also increased based on July data, and signs of elevated price pressure in the manufacturing sector" also support a pause, she noted.

The regulator’s decision could be complicated by the lack of complete inflation data for August. "Rosstat will publish the data on the same day, but later, at 7:00 p.m. Meanwhile, it is full-month data covering a broad sample of goods and services that the Bank of Russia considers the most representative and reliable, particularly for assessing underlying inflation," Belenkaya added.

Freedom Global Lead Analyst Natalia Milchakova estimates the probability of the rate remaining at 14% at around 60%, compared with a 40% probability of a cut to 13.75%. According to her, factors supporting a pause include the fuel situation, persistently high inflation expectations among households and the weakening ruble.

A minimal cut remains on the table

The only survey participant to name a rate cut as the baseline scenario was Dmitry Kulikov, Senior Director of the Sovereign and Regional Ratings Group at ACRA. In his view, the Bank of Russia could take the opportunity to lower the rate by 25 basis points to 13.75% before new budget projections are published.

"Before the new budget plans are published, the Bank of Russia has an opportunity to take another 0.25-percentage-point step downward without having to provide an additional detailed explanation of its response to fiscal stimulus. It seems to me that this opportunity will be used," Kulikov noted.

Analysts expecting a pause also see arguments in favor of a cautious cut. Gazprombank Chief Economist Pavel Biryukov pointed to a possible slowdown in core inflation in August and weaker consumer demand. "Preliminary estimates of core inflation in August look better than the Bank of Russia’s projected trajectory. In July, seasonally adjusted annualized core inflation accelerated to 7% from around 5% in May-June. However, according to our estimates based on Rosstat’s weekly data, core inflation may have returned to 5% in August," he noted.

"Household inflation expectations corrected to 13.7% in August after the July spike. Growth in retail lending slowed to 0.5% month-on-month in July from 0.9% in June. Leading indicators point to a possible weakening in demand dynamics in the second half of the year," Biryukov added.

According to T-Investments Chief Economist Sofia Donets, the economy has returned to a slowdown since the July meeting, business sentiment has remained weak, and wage growth has fallen below 10% for the first time since 2021. "Inflation and inflation expectations are moving in line with the Bank of Russia’s forecasts, but risks are being amplified by a renewed fuel shortage, geopolitical tensions, uncertainty surrounding the budget and an 11% weakening of the ruble. Therefore, we expect the key rate to remain at 14% on September 11, with a cut to 13.75% as the most likely alternative," Donets noted.

Expectations of a rate cut

Anatoly Aksakov, Chairman of the State Duma Committee on the Financial Market, told TASS that the likelihood of a 0.25-percentage-point key rate cut at the September meeting had increased amid the current slowdown in inflation. In his view, such a move would be cautious but would send a clear signal to the market.

Earlier, on the sidelines of the Eastern Economic Forum, Sberbank CEO Herman Gref forecast that the key rate would decline in increments of 25-50 basis points to 13-13.5% by the end of this year. VTB CEO Andrey Kostin told reporters that he did not expect a pause at the September meeting and believed the rate would continue to decline gradually.

VTB Group Chief Economist Rodion Latypov, however, considers a pause at the September meeting more likely, although he expects the rate-cutting cycle to continue over the medium term. In his view, inflation currently exceeding target levels is due to temporary supply shocks. "We consider them temporary, so we expect the key rate-cutting cycle to continue over the medium term. A pause at the September meeting is possible and currently appears more likely, but the Bank of Russia will also consider the possibility of a 25-basis-point key rate cut," he noted.

Another half-point by year-end

Most analysts expecting a pause in September believe that the Bank of Russia will be able to resume rate cuts at its key policy meeting on October 23, when more information will be available on budget parameters and the impact of the fuel shortage on inflation.

"By the end of the year, the key rate could decline to 13.5% - we expect the regulator to continue gradually easing monetary policy in order to minimize the risks of excessive cooling of the economy. Such a trajectory is also consistent with the Bank of Russia’s own baseline scenario published in July," Senior Interest Rate and Debt Market Strategist at SberCIB Investment Research Igor Rapokhin said.

Sovcombank’s Vasilyev has a similar assessment. "In our baseline scenario - assuming no change in the geopolitical situation, no deterioration in the fuel market and no negative surprises from the budget - we expect the Bank of Russia to cut the key rate by 25 basis points to 13.75% at its next meeting on October 23. We forecast that the key rate will decline to 13.5% by the end of the year," he noted.

At the same time, according to Vasilyev, the risks are skewed toward a higher rate. In a risk scenario, the Bank of Russia could keep it at 14% through the end of the year in the event of a deterioration in the geopolitical situation, a prolonged fuel shortage, further ruble weakness or a more significant widening of the budget deficit.

Sergey Klisenko, Managing Director of the National Rating Agency’s Rating Service, also believes that a rate cut could be postponed until October or December. In his assessment, another wave of fuel shortages in August is delaying the normalization of supply and the restoration of production capacity compared with forecasts made one to one and a half months ago. "We believe the Bank of Russia will refrain from cutting the rate in September, postponing it either until the key policy meeting in October, when its medium-term forecast will also be updated, or until December," he concluded.