Russia to hold rates in Feb, economy seen contracting again in 2023- Reuters poll

(Reuters) – The Bank of Russia will keep interest rates on hold at 7.5% next week as inflation remains above target, pushing the countrys economy to a second year of contraction in 2023, a Reuters poll showed on Tuesday.

Russias economic landscape changed drastically after Moscow sent tens of thousands of troops into Ukraine on Feb. 24, triggering sweeping Western restrictions on its energy and financial sectors, and leading scores of companies to exit the market.

Initial expectations of a double-digit economic slump in 2022 proved overblown, but analysts anticipate a longer deterioration of Russias economic health, predicting a drop in gross domestic product (GDP) of 2% this year, following on from an estimated 2.5% slide in 2022.

The average of 17 analysts and economists polled in late January suggested the Bank of Russia will hold the key rate at 7.5% at the Feb. 10 board meeting, as it bids to bring inflation back to its 4% target.

Inflation expectations, a key indicator the central bank pays close attention to in the run up to meetings, fell to 11.6% in January, but remain elevated. The central bank said it sees inflation risks rising this year.

Analysts‘ expectations of a 2% drop in GDP this year contrast with that of the International Monetary Fund, which on Tuesday said it saw Russia’s economy growing 0.3%.

The average of forecasts in the poll suggested the rouble will trade at 73.00 against the dollar a year from now, compared with a rate of 72.50 predicted by analysts earlier this month. Tuesdays official rate was 69.59 roubles per dollar.

“A negative mood dominates in the FX segment at the moment, which raises the likelihood of short term moves towards a weaker rouble,” said Rosbank Research analysts.

“Consistent pressure on the geopolitical front and fears related to the consequences of the price ceiling on oil products are having their say,” Rosbank added.

The central bank was expected to lower the key rate gradually to 7.13% by year-end, with forecasts ranging from 6.50% to 8.00%, the poll showed, from 7% in the previous poll.

Annual inflation is expected to finish this year at 5.8%, the same as in the previous poll, and well down from last years double-digit rise.

Most of the forecasts in the Reuters poll were based on at least 10 individual projections.