CBR has widened the basket band to RUB 7 and cut volume of cumulative interventions required to shift band 5 kopeks from USD 500mn to USD 450mn. The band has been widened symmetrically (upper and lower bands each shifted 50 kop) implying a current band of 31.65-38.65.
Last time CBR widened the band (from RUB 5 to 6) and lowered the interventions threshold (USD 600mn to USD 500mn) was on 27 December 2011. Given the officially published daily interventions for YTD, the no-intervention zone was unchanged at 34.65-35.65, while interventions ranges were widened by the same amount. We believe that this time the no-intervention zone has also remained unchanged, while the interventions ranges were symmetrically widened. The volumes of interventions inside the trading band might have decreased.
Under a scenario with oil prices below USD 100/bbl, RUB will be on average weaker under the CBR’s new intervention mechanism compared with previously. Thus, the CBR’s latest decision adds downside risks to our RUB forecasts. We think the midterm impact on the money market and bond market would be limited. However, the initial reaction to the news could be fairly negative due to the weaker RUB expectations.
From the monetary policy point of view, the move looks entirely logical and in line with Monetary Policy Guidelines for 2012-14. CBR’s official goal is to move towards full inflation targeting, which assumes a free float on FX market and limited volatility in ST interest rates and it expects to conclude this transition within next 2 yrs. As a next step we might see further narrowing of interest rate band, which may take a form of 25bp deposit rate hike already in Aug. Under base case scenario we see a 25bp REPO rate hike in September, although after interview by CBR Deputy Chairman there is a possibility of a 25bp rate hike in Aug.