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CBR Monetary Policy Report – 3Q13

Yesterday, the CBR released its flagship Quarterly Monetary Policy Report for 3Q13. The key messages are as follows.

Economic slowdown. The regulator retains its relatively hawkish rhetoric that the economic slowdown is, to a large extent, a structural phenomenon.

Growth forecasts. In an encouraging development, the CBR mentioned its quarterly GDP growth forecasts: 1.5–1.8% YoY in 3Q13 and 1.8–2.1% YoY in 4Q13, mainly on the favourable base effect in agriculture. For 2014, the CBR’s baseline is 2.0% growth and downside risks prevail, as there is the potential for a further decline on stagnant investment activity.

Output gap. On its conservative assessment of potential growth, the regulator sees the negative output gap as relatively moderate (-0.1–0.5%). Given its expectations of the economy picking up in 2H13, it does not expect the gap to widen sharply.

Inflation. The current disinflation in both food and the core basket is welcomed and the CBR expects headline CPI to fall below 6.0% before the year-end. Further disinflation is seen in 2014, conditional on a continued downtrend in inflation expectations. The FX pass-through is judged to be moderate and the key upside risk for next year is related to the harvest outlook.

Policy stance. The current policy stance is considered relatively tight, but monetary easing is judged ineffective at this juncture. Nevertheless, easing steps are not ruled out, conditional on inflation expectations and growth outlook.

Operational framework. The CBR summarised the recently announced measures to improve policy transmission, but no additional measures were revealed.

We continue to believe that the regulator underestimates the already visible persistent disinflationary impulse from the economic slowdown. And given the unchanged hawkish tone we do not expect a rate cut before 1Q14.
Dmitri Fedotkin, Mykyta Mykhaylychenko, Vladimir Kolychev, Daria Isakova
VTB Capital analyst

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