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Ignatiev comments on headline CPI and possibility of monetary policy easing


Vedomosti has published a big interview with Sergey Ignatiev, who has been working as CBR Chairman for eleven years and is to leave his post this June. The key takeaways are as follows.

  • This year, headline CPI is to decline and reach the CBR’s target range for this year of 5-6% YoY.
  • There is a possibility of a cut in key rates in the coming months.
  • The low unemployment rate was an obstacle for monetary policy easing.
  • Ignatiev sees a potential for increasing infrastructure spending.
  • He mentioned that retail lending growth was too strong, and corporate too weak.
  • Grey capital flight should be addressed by the law-enforcement agencies.

We also expect headline CPI to decline once it reaches its peak in February and are retaining our forecast for headline CPI at 5.3% eop-2013 (given Brent oil at USD 110/bbl). Ignatiev’s words are once more in line with our view of coming monetary policy easing. To recap, we see the first easing step in April and a 75bp cut in total for FY13.

On the unemployment front, as the January data showed a pick-up in unemployment, that opens the door for monetary policy easing. As far infrastructure spending is concerned, we agree with Ignatiev’s comments, however the key issues in this regard are efficiency and preserving long-term fiscal stability. In order to keep the fiscal rule intact, a main source for infrastructure spending should be found inside the budget. The story about grey capital flows is not a new one. We believe that improvements on this front, coupled with developing an investment climate, will turn Russia’s economic conditions to the better. 

Maxim Oreshkin, Daria Isakova
VTB Capital analyst


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