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CBR plans to set CPI target range for 2014-16 at 4.5% YoY +/- 1.5%


Yesterday, the State Duma Committee on the Financial Markets debated the nomination of Sergey Shvetsov, Deputy Head of the CBR, to the regulator’s Board of Directors, and subsequently declared its readiness to support his candidacy. Answering journalists’ questions, Shvetsov mentioned a number of important points.

The CPI target for the next two-three years is 4.5% +/-1.5 percentage points.

Headline CPI will likely not exceed the targeted 6% this year and 5% next year. “I personally think that headline CPI will likely go below 6% only in 4Q13, but some think that this will happen earlier,” he said. Real GDP growth is at its potential.

Debates over whether to include a growth goal into the CBR’s mandate should be postponed until the autumn. 

We see the 4.5% target as optimum for Russia: if achieved on a constant basis, it would mean low and stable inflation, but still with room for structural shifts in the economy. Widening the range from 100bp to 300bp will give the CBR more flexibility and allow it to be more forward looking. Had a more flexible approach been used this year, we believe we would already have seen lower repo rates.

Shvetsov’s comments on the inflation outlook and output gap confirmed that he remains one of the key hawks in the CBR. As a corollary, we suppose that some of the board members (with a more favourable inflation forecast) are not that hawkish and that the recent decision was possibly split.

Shvetsov confirmed our view that the next policy decision will depend on data, with the key numbers being inflation, unemployment and lending dynamics.

The re-approval of Shvetsov as a board member, his discussion of medium-term goals and the likely postponement of any changes to the CBR’s policy goals until autumn supports our argument that we shall see full continuity of CBR policies under incoming governor Elvira Nabiullina. 

Maxim Oreshkin, Daria Isakova
VTB Capital analyst


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