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Russia to hold rates next week, 2023 GDP growth seen improving – Reuters poll

Russia will hold its key lending rate at 7.5% next week, a Reuters poll showed on Thursday, with persistent inflation risks seen preventing the central bank from easing the cost of borrowing and limiting Russia’s growth this year to 0.7%.

Last year, the Bank of Russia gradually reversed a late February emergency rate hike to 20% after Moscow despatched tens of thousands of troops to Ukraine, which led to increasingly wide-ranging Western sanctions.

Since September the bank has kept its key rate at 7.5%, where analysts expect it to stay into early 2024, but has maintained a hawkish signal in the run-up to its June 9 policy meeting.

All 12 analysts and economists polled by Reuters predicted Russia would keep its benchmark rate unchanged again on June 9.

The poll envisaged the Bank of Russia’s key rate ending 2023 at 7.5%, before dipping to 7% next year. Forecasts for year-end 2023 ranged from 6.5% to 8.5%.

“Pro-inflation risks are prevailing, which creates risks for an inflation acceleration later,” said Mikhail Vasilyev, chief analyst at Sovcombank, expecting the central bank to be forced into rate hikes later this year.

Analysts have gradually been improving economic growth forecasts, now seeing Russia’s gross domestic product (GDP) rising 0.7% this year, up from 0.1% in the early May poll, and increasing 1.4% next year, slightly lower than previously thought.

Russia’s economy defied early expectations for a double-digit economic contraction in 2022, ultimately falling 2.1%, helped by rising military production and huge state spending, but a return to long-term prosperity remains a long way off, even according to Russia’s own economic forecasts.

A trove of data published late on Wednesday showed Russia’s unemployment rate dropped to a record low 3.3% in April, highlighting the labour shortages which have been stifling growth.

Analysts see annual inflation ending this year at 5.4%, down from 6% in the previous poll, but still above the central bank’s 4% target.

The average of forecasts in the poll suggested the rouble will trade at 79.00 against the dollar a year from now, the same prediction as in late April. Wednesday’s official rate was 80.69 roubles per dollar.

Most of the forecasts in the Reuters poll were based on around 10 individual projections.
Source: Reuters (Reporting and polling by Alexander Marrow and Elena Fabrichnaya; Editing by David Holmes)

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