MNI CBR Preview - October 2024: Another Hike Justified
Executive summary:
- The CBR is expected to hike the key rate by 100bps to 20%, with the recent surge in household inflation expectations and tightness in the labour market leaving the Bank little to no room to pause.
- Meanwhile, early signs of slower price increases and more moderate economic activity data will likely limit the size of the hike to just 100bps.
- As per a Bloomberg survey, 9 out of 13 analysts expect a 100bp hike to be delivered (2 expect no change and 2 expect a larger hike).
See the full preview, with a summary of sell-side analyst views, here:
Inflation in year-over-year terms, which peaked in July at +9.1%, decreased to +8.63% in September. However, the figure remains above the CBR’s earlier forecast of a decline in headline inflation to +7.8% in Q3. Household inflation expectations for the year ahead rose to 13.4% in October from 12.5% in September. Expectations have been rising steadily since April, dropping only temporarily in September, and are currently at the highest levels since the start of the year. The CBR warned in the minutes of last month’s meeting that “inflation expectations were rising despite the tightening of monetary policy, which could suggest that they were becoming less anchored,” contributing to its decision to “give a guided signal of a possible key rate increase at its upcoming meeting.”
The CBR’s rationale for opting against a larger 200bp hike in September was that “it was not yet possible to definitively say that the medium-term inflation path had deviated from the July baseline forecast significantly” and that a 100bp move was “a more balanced decision.” Similar thinking will likely guide another 100bp hike at this month’s meeting.