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CBR leaves policy space


Last Friday, the CBR decided to leave all key interest rates unchanged. The refinancing rate stays at 8.25%, the one day repo fixed rate at 6.50%, the one-day repo auction rate at 5.50% and the overnight deposit rate remains at 4.25%. The next policy meeting is scheduled for the first ten days of next month. The next policy meeting is to be early next month.

Overall, the CBR's statement has become more dovish: there are only mild changes in its assessment of the economy and inflation, and we also note that it chose not to include the phrase “appropriate interest rate level”. So we do not expect the CBR to hike key lending rates any time soon. However, interest rate corridor narrowing is still on the agenda. Moreover, we believe that the tightening cycle has come to an end and the next step (likely at the end of 1Q13, early 2Q13) will be monetary policy easing.

In its press release, the CBR mentioned decelerating headline CPI and, more importantly, stabilising price growth across the main CPI components, especially in food (the key inflation driver over recent months). The regulator stated that this, coupled with the September hike in key rates, might contain inflation expectations. At the same time, the CBR mentioned that CPI remains higher than its target level (5-6% YoY is the regulator’s forecast for 2013) and that inflation expectations still need to be treated carefully.

The tone of the press release on the growth outlook was broadly unchanged. The regulator said that September’s economic indicators pointed to a continuation of the slowdown in economic activity, and again mentioned that the economy was performing near its potential level. It also highlighted the still tight labour market, coupled with strong lending activity and the positive performance of agents’ confidence indicators, in recent months. 

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

CBR, inflation, CPI

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