Yesterday, the CBR left its key rate at 5.5%, as was widely expected.
On a separate note, the RUB 500bn three-month MTRO auction today garnered market demand of RUB 563bn and cleared at a 5.76% cut-off rate.
The tone of the accompanying statement has become less hawkish, but the key message remained intact: the regulator is comfortable with sacrificing growth for the good of lower inflation expectations. Given this rhetoric, we have pushed back our expectations for the first rate cut to 1Q14, by which time we believe it will have become evident that headline CPI is on a firm trend toward next year’s target. Consequently, we have cut our growth expectations for 2014 to 2.2% YoY (from 2.6% previously).
MTRO auction provides a temporary relief. We welcome this development, as it is likely to both i) put further downward pressure on the cost of bank funding (3-month MosPrime), including ultimately crystallising into lower interest rates in the economy and ii) release repo collateral, thus relieving pressure on the money market and pushing cash rates closer to the key policy rate. The relief, however, is likely to be only temporary, as the budget is expected to drain liquidity until the last days of December.