Last Friday, First Deputy Chairman of the CBR Alexey Ulyukaev made a number of comments on monetary policy.
Capital flows and RUB. According to Ulyukaev, investor inflows into Russian assets might intensify towards May-June as more clarity on future economic policies emerges. This, coupled with the strong current account, might prompt RUB appreciation in 2H12.
FX interventions. In March, the CBR continued FX purchases at the same pace as in February (USD 2.6bn). The floating range for RUBBASKET was unchanged, at 32.20-38.20.
Inflation. In the coming months, the CBR sees CPI staying at around the 3.7% YoY reported for February, before rebounding in 2H12. Inflation risks in 2H12 are a hike in regulated tariffs and monetary/fiscal policy easing (due to the CBR’s purchases on the FX market and the budget deficit at the start of 2012). The CBR also mentioned that, surprisingly, rouble weakening in 2H11 and the recent rouble strengthening had not affected CPI. Ulyukaev mentioned that the inflation target (no longer a forecast) remained at 5-6% YoY for this year.
Our View: Ulyukaev’s comments are quite hawkish and support our view that the CBR is to stay on hold this year due to postponed inflation risks. We see inflation climbing to 7.0% YoY in 2012. The remarks about FX interventions imply that capital outflows continued in March (in February, the outflow reached USD 9bn), whcih means that we remain concerned about the rouble. We expect USD/RUB at 31.0 by the year end.