We welcome the publication and believe that the CBR will continue to improve its communication policy.
The report sounds neutral. He CBR says that the economy is currently running near potential and that it sees no pressure from the demand side on inflation, while at the same time expecting demand dynamics to deteriorate somewhat on slowing lending.
We still believe that there is already a small negative output gap, which is pushing underlying inflation down. We expect the weak economic data in 1Q13 and headline CPI reaching its top for 2013 to push the CBR to start monetary policy easing in March-April.
The CBR continues to focus on the dynamics of monetary indicators. It treats the latest sharp slowdown of money supply growth rate as a disinflationary factor. According to the CBR, the total amount of available collateral is RUB 5tn (3/4 is market assets and 1/4 is non-market). The market collateral is 60% utilised while for non-market assets the figure is 30% (only loans already approved for refinancing are included in the calculation). Through the latter channel, up to RUB 900bn can now be provided (and more if additional loans are approved). The CBR argues that the current system can easily cope with higher demand for liquidity this year, so we do not think the CBR will be in a rush to modify the refinancing system. This supports our view that FX swaps and loans backed by non-market assets will be the key sources of new refinancing to banks this year. We see the optimum collateral utilisation level at 10-20%.
The CBR also mentioned that, under a scenario of deteriorating external conditions and RUB weakness, the regulator’s initial reaction would not be policy easing, but tightening. This is in line with the view expressed in our Russia’s economy outlook 2013: time to deliver, of 21 January.