The CBR retained its cautious stance, leaving short-term repo rates unchanged, but cut the rates on medium-term refinancing tools 25bp. Both the decision and the comment were similar to the ones in April. Overall, the tone of the statement remained dovish, signalling no hurdles for further easing, which is set to become bolder when the data on the CPI, unemployment and lending become more favourable.
The CBR is dovish and ready to act. It again mentioned rising risks to economic growth and the deteriorating confidence of economic agents. This, combined with its expectations of slowing inflation, advocates greater easing steps. The regulator did not state that the current level of interest rates was appropriate, which means it is ready to act on short-term rates as soon as the data on inflation, labour market and lending activity is more favourable for easing, in our view.
With disinflation set to return in the second half of May, we see a good possibility for a 25bp rate cut in all rates at the next CBR board meeting in the first half of June (the last meeting before Elvira Nabiullina is to take charge of the CBR). We maintain our FY13 forecast of a 75bp reduction in the repo auction rate (likely to be delivered in three steps during the summer months), the introduction of an FX swap auction facility (at the repo auction rate level) closer to the end of the summer, and further relative cheapening of the 312-P facility toward a 100-150bp premium over the repo auction rate (currently at +125-225bp for 3-12 month tenors).