The CBR has decided to leave all key interest rates unchanged, with the central policy rate staying at 5.50%. Importantly, a coded phrase that the current level of interest rates is appropriate over the near term was dropped from this press release, which gives the regulator more flexibility. However, that does not necessarily imply outright monetary changes during the next policy meeting: we might see only some fine-tuning steps within the current framework.
At the same time, the rhetoric on the economic and inflation outlook remains almost identical, with, in our view, a slightly more cautious outlook for the country’s economic prospects, given more upbeat inflation comments (the CBR simultaneously emphasised slowing core inflation and the temporary nature of the current pick-up in headline inflation).
We are therefore maintaining our view that the CBR will stick to its wait-and-see stance – closely watching economic threats but being comfortable with the downward trend in underlying inflation – until at least March-April this year, when it might opt to loosen. We believe that the impact of the CBR decision, which came broadly in line with our and market expectations, on money market rates and the rouble will be neutral.