Russia set for aggressive 200 bps rate hike to cool down economy: Reuters Poll

By Elena Fabrichnaya and Gleb Bryanski

MOSCOW (Reuters) - The Russian central bank is set to hike its key interest rate by 200 basis points to 18% at the July 26 board meeting to tame inflation and cool the overheated economy, a Reuters poll showed on Monday.

Massive state spending, wage growth across all sectors, acute labor shortages, and continued growth of corporate and retail lending are the main factors behind inflation, which is currently running at 9.2%, well above the regulator's target of 4%.

All 28 analysts agreed that the rate hike was inevitable, with three-quarters of the polled analysts predicting an aggressive 200 basis points hike. Only four analysts saw the possibility of a 100 basis points rise.

"There are no alternatives to the rate hike at the July 26 meeting," said Oleg Kuzmin from Renaissance.

In the previous Reuters poll on July 2, 10 out of 16 analysts saw the 200 basis points hike. Some analysts have since raised their forecasts based on the latest inflation numbers.

"We have raised to 18% taking into account the latest data," said Sofya Donets from T-Bank.

The central bank argues that tight monetary policy will help to bring down inflation to the target 4%.

"High lending growth is a concern for the central bank, which is trying to cool down demand with high interest rates. However, it has not succeeded so far," Finam analysts wrote.

The central bank's opponents among industry lobbyists and bankers accuse the central bank of stifling economic growth at a time when the economy, powered by defense sector spending, can grow at faster rates than the current 5%.

In the run-up to the July 26 meeting, the regulator's rhetoric has hardened, with its governor, Elvira Nabiullina, flagging that the board will focus on the size of a rate increase, not on the need for it.

The central bank said earlier that tight monetary policy is needed for a significantly longer period than was previously foreseen to contain inflation in a more sustainable way.

The regulator is also expected to review its inflation forecast for this year, currently at 4.3-4.8%. Some analysts pointed out that inflation is going through a peak level of over 9% now and will slow to 7% towards the end of the year.

(Reporting by Elena Fabrichnaya, writing by Gleb Bryanski; editing by Guy Faulconbridge)