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CBR monetary policy decision preview

The CBR is due to hold a Board of Directors meeting today and decide on key policy interest rates. Currently, the refinancing rate is 8.25%, the 1-d REPO fixed rate is 6.50%, 1-d REPO auction rate is 5.50% and o/n deposit rate is 4.25%. The last time these rates were changed was September 2012.
In our base case scenario, we see the CBR continuing with monetary policy tightening this quarter, after hiking all interest rates 25bp at its last policy meeting. Meanwhile, today the regulator is likely to hike only the deposit rate 25bp in order to narrow the interest rate band (which currently stands at 225bp between the 1-day fixed repo rate and o/n depo rate and 125bp between 1-day min auction repo rate and o/n depo rate) and therefore cut interest rate volatility. We then see the CBR hiking another 25bp by the end of this year to preserve credibility and anchor inflation expectations. This might occur in November, if the recent upbeat movement of leading indicators proves to be sustainable and translates into demand growth, coupled with a continued upwards trend in core inflation during October.

Economy ahead of the CBR decision:

CPI jumped to 6.6% YoY in September, above even the upwardly revised CBR forecast of headline CPI for this year (6.3-6.4% YoY).

August statistics reflected that the economy is cooling. Retail sales and investment growth rates kept declining, touching new lows. IP growth slowed down and was back to its normal 2% YoY growth path.

On a SA basis, the unemployment rate dived deeper for the second month in a row, which implies contained labour supply and pressure on nominal wages.

There was global relief after the announcement of monetary policy stimulus supported consumer confidence. However, we expect a sharp decline in oil prices towards end-2012 and, consequently, a weaker RUB. 

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

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