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Nabiullina on monetary policy



Amid a cooling economy, lower headline CPI and inflation risks will likely afford ground for the CBR to cut policy rates in 3Q13. We reiterate our view of 75bp in total rate cuts in 3Q13, as June will likely mark the beginning of strong headline disinflation on the favourable base effect in the food component.

Conceptual issues

Continuity of policy to be preserved. As expected, inflation targeting and the course towards greater RUB flexibility will be kept intact.

Monetary policy can stimulate growth in the short run, but in the long term Russia needs structural reforms. Given the current level of institutions, 5% YoY growth is impossible. We agree that the monetary policy regarding the growth might only be efficient in the short run: it could help economic growth return to its potential, but in the long term it is mostly neutral and cannot add to the potential pace of growth.

No need to extend CBR’s mandate with growth-goal. In our view, this implies preserving the regulator’s independence. The ultimate goal of the CBR’s policy should be low and stable inflation that, in turn, will provide grounds for sustainable growth in the long run.

Available credit

She objects to indicative lending rates. This is positive, as we were sceptical about the efficiency of this measure.

Optimising excessive reporting procedures might reduce banks’ margins 1.0–1.5pp. According to our banking team, the eased reporting procedures are mostly beneficial for Sberbank, which has made decent progress on automation.

Modification of refinancing toolkit

Nabiullina plans to cheapen 312-P loans by putting them on an auction-based scheme, but oppose more attractive terms for the CBR’s FX swaps operations. Given this, we now expect a lower cut in FX swaps rates (to what we expected previously) and a larger cut in 312-P loan rates.

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

CPI, CBR, ruble, FX market

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