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Next year will not bring CPI surprises


Alexey Ulyukaev, the first deputy chairman of the CBR, yesterday commented on Russia’s monetary policy. The key takeaways are as follows.

The CBR expects YoY CPI growth for FY12 to be higher than for FY11, but still between 6–7% YoY. Next year, inflation risks will be comparable with the current pressures from food, supply and monetary factors.

The ongoing economic slowdown (particularly the modest real GDP growth in 3Q12 of just 2.9% YoY) is becoming worrisome, but the current scale is not enough for response measures.

While retail lending growth shows some signs of overheating, recently announced macro prudential measures will promptly restrict this growth.

Liquidity conditions are comfortable, as repo limits are usually higher than demand. Banks are able to borrow 2.5x more liquidity from the CBR, given their collateral facilities.

The CBR sees corporate lending as expanding annually at 20% during 2012–15. This coincides with YoY real GDP growth of 3.5–4%. For sustainable corporate lending growth, banks will need more capital, and the CBR therefore expects that half this year’s earnings (round RUB 1tn) may be retained as a capital.

The comments bode well for our expectation that the tightening cycle is now over and that it will be replaced by a ‘wait and see’ stance. We expect that gradually slowing economic growth this and the next quarter, with decelerating lending activity and higher bank deposit rates (and a commensurate pick-up in the savings ratio), coupled with edging down inflation, will push the CBR to start the easing cycle as soon as late 1Q13-early 2Q13. Ulyukaev’s comments on growth show that the CBR’estimate of potential growth is closer to 4%, which is in our view as overly aggressive (we stick to our 2.5–3.0% figure). This situation may lead to excessive policy easing next year and, as a result, a build-up of inflation pressures in late 2013–14. But it is premature to discuss this issue, because a lot depends on who is chosen as next CBR governor.

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

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