WOOD Flash – Russia macro: CBR hikes by 100bps, but the hiking cycle is not over yet

At its meeting on Friday (23 July), the Board of Directors at the CBR decided to raise the key policy rate by 100bps to 6.50%, in line with the consensus expectations, but above our forecast of a 50-75bps hike. The usual hawkish signal was retained in the post-meeting statement, suggesting the possibility of further rate hikes at the coming meetings. However, the tone was slightly less strong than before, which suggests, in our view, that a hike of such a magnitude was a one-off, and the upside room for further rate hikes is far more limited now. On the credit front, retail lending has shown a brisk upward trends in past months and the rate hike cycle, which started in March, is yet to be reflected prominently in borrowing costs. Therefore, we believe that the bank will need to tread cautiously from here onwards, or some of the tightening may have to be retracted by the beginning of the coming year. Drawing from the overall message of the meeting, we have revised our policy rate forecast upwards, to 7.25% for the year-end (from 6.50% previously). Inflation is most likely to peak in September and then head on a gradual downward trend, which would create some room for a modest reduction, to 6.00%, by the end of 2022E.