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CBR still threatens inflation risks but expects they to abate

 
04.04.2013

CBR Head Sergey Ignatiev commented on monetary policy at the XXIV meeting of the Russian Banks Association. The key takeaways are as follows.

The regulator is still concerned about inflation risks.

Headline CPI is likely to return to the CBR’s 5-6% YoY target range in 2013 and Ignatiev expects grain prices to decelerate further.

The tight labour market is preventing the regulator from monetary policy easing.

The CBR might cut repo rates before the CPI declines below 6%.CBR Head Sergey Ignatiev commented on monetary policy at the XXIV meeting of the Russian Banks Association. The key takeaways are as follows. The regulator is still concerned

As of 1 April, the headline CPI slid to 7.1% YoY and it is set to decelerate in the coming weeks and months (we expect it to end the year at 5.4% YoY). Abating CPI would gradually reduce the CBR's concerns over inflation, thereby opening the way for action.

As regards the labour market, we shall be looking at the SA unemployment rate in the months to come. The March data is due to be published on 17-18 April, and we expect to see some pick up in the indicator. We are retaining our view that SA unemployment is set to rise due to subdued economic growth.

All in all, we see a good possibility for a 25bp rate cut in all rates at the next CBR policy meeting and believe that the dynamics of headline CPI and unemployment are key for that decision. If the former continues declining, while the latter starts increasing (on a SA basis), the CBR could start cutting the repo auction rate, in our view. Meanwhile, by that time we might also have heard the first comments from Elvira Nabiullina, who is scheduled to be approved by the Duma this month. 

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

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