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Ulyukaev on inflation, growth, capital outflow and reserves


Yesterday, First Deputy Chairman of the CBR Alexey Ulyukaev gave an interview to RBC-TV.

September’s hike. The key driver was increasing inflation risks, with a stable growth outlook at that time. The CBR opted to anchor inflation expectations, which once free might be hard to contain.

Inflation. CPI peaked at 6.6% YoY in mid-October and is now stabilising, partly due to September’s hike; it is unlikely to exceed 6.6% YoY this year. The regulator is paying attention to its own core inflation indicators (CPI excluding food and gasoline). Headline CPI might enter the CBR’s target range of 5-6% YoY in 2Q13 mainly on slower money supply and the lower pass-through effect.

Growth. The CBR sees 3.5-3.7% YoY in 2012-13 and outlines higher risks to growth.

Capital outflow. The CBR's estimate of capital account is virtual, not factual as CA. FDI is an indicator of investment climate, while portfolio investments reflect global sentiment on developing markets and are flexible.

Reserves. Recently, the CBR has increased the share of AUD and CAD at the expense of USD and EUR.

The CBR’s use of its own core inflation indicators is crucial and beneficial for timely monetary policy decisions, as Rosstat’s core measure of prices growth is misleading. Given the modest CPI growth in 1–10 December, we agree with the CBR’s 2012 CPI estimate of 6.6% YoY (we forecast 6.8% YoY). As for the CPI in 2013, we see more inflation risks (the regulated tariffs hike in January and the unfavourable base effect for food prices) and only expect CPI to dip below 6% YoY in 2H13.

The CBR’s overly aggressive GDP estimate for 2013 (3.5–3.7%, vs. our 2.0% YoY) supports our view that the regulator will start easing in March-April 2013 amid lower economic growth than expected by officials.

We also agree with the CBR’s note of capital outflow and think that it does not provide sufficient (or at least additional) information on the overall picture, as it is in tandem with CA and the global mood.

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

CBR, CPI, euro, dollar, GDP

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