Yesterday, the CBR left short-term repo rates unchanged, but cut the rates on medium-term refinancing tools 25bp (including the minimum 3- and 12-month auction lombard and repo rates, one-year fixed repo rate, as well as rates for loans backed by non-market assets (312-P) and gold).
Overall, the tone of the statement was more dovish. The CBR mentioned that in 2H13, inflation, spurred by temporary supply-side factors, was likely to return to its target range, given anchoring inflation expectations and a normal harvest this year. At the same time, the regulator highlighted increasing risks to economic growth and the deteriorating confidence of economic agents. Furthermore, the CBR dropped the phrase on the appropriate level of interest rates that was present in the March comment (published some two weeks ago). We believe that the significant change of tone signals further easing down the road.
The implemented easing move is gentler than we expected (and thus will have limited positive implications for economy); however, we see the current decision and the overall mood of the accompanying statement as a powerful signal of the beginning of an easing cycle, which we expect to continue this year, and include a 75bp cut in the repo auction rate, the introduction of an FX swap auction facility (at the level of repo auction rate), and significant cheapening of the 312-P facility toward a 100-150bp premium over the repo auction rate (currently at +150-250bp for 3–12 month tenors).
Although historically there is a two-month gap between the CBR’s 25bp rate moves, the changes to the refinancing tool-kit did not affect the short-term repo rates and we therefore see a good possibility for a 25bp rate cut in all rates at the next CBR board meeting in the first half of May.