Russia’s cenbank is expected to keep its key rate at 20% on Friday

© Reuters. FILE PHOTO: Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov

(Reuters) – Russia’s central bank is expected to keep its key rate unchanged at 20% on Friday after a sharp emergency rate hike in late February aimed at supporting financial stability, a Reuters poll showed on Monday.

The central bank raised the key rate by 9.5% on February 28 as the ruble slumped to record lows and people rushed to withdraw money from banks after the West imposed sanctions unprecedented attack on Russia for what it calls a “special military operation” in Ukraine.

Sixteen out of 17 analysts and economists polled by Reuters predicted that Russia would keep the key rate at 20%, above the 17% level seen in 2014 when Russia annexed Crimea from Ukraine. One expert said he expected rates to rise to 25%.

“The level of geopolitical uncertainty remains too high for decisive action,” said Sofya Donets, chief economist at Renaissance Capital, who previously worked in the central bank’s monetary policy department.

There is no need to raise rates now as the flow of foreign currency money has been blocked by other restrictions, while it is too early to talk about any rate cuts that would be needed to limit the depth of the economic downturn, Donets said.

Russia has introduced commissions on buying foreign currency online and banned the sale of dollars and euros in cash, while limiting the maximum amount of currency that can be withdrawn from bank accounts to the equivalent of $10,000 for at least six months.

Meanwhile, the emergency rate hike has made ruble deposits more attractive, with banks offering to pay 20% annual interest on ruble savings.

Regardless of geopolitical issues, the level of rates in Russia is shaped by inflation and the need to quell panic in the currency market, said Konstantin Svyatny, chief portfolio manager at Aton Management brokerage.

Inflation in Russia is expected to accelerate to 20% and its economy could slump as much as 8% this year, an independent analyst survey commissioned by the central bank revealed last week.

Russians are no strangers to currency crises, having watched hyperinflation destroy their savings after the collapse of the Soviet Union, before President Vladimir Putin came to power.

The Bank of Russia is aiming for inflation at 4% and had gradually raised its rates since 2020 to limit a rise in consumer prices, which undermines the standard of living.

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