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Macro week ahead


This week, the key newsflow in Russia is the CBR’s monetary policy decision (Friday), while in the rest of our CEMEEA universe there are central bank meetings in Poland (tomorrow) and the Czech Republic (Thursday). Also, CPI releases for October and for the week ending on 5 November are due in Russia. In addition, IP data for September will be unveiled in the Czech Republic, South Africa, Hungary and Turkey.

While the full-October CPI release will likely show, as it frequently has this year, a combination of headline inflation above 6.0% (we expect it to pick up to 6.2%) owing to non-monetary factors (elevated food prices growth) and gradually slower core inflation, the weekly CPI report will also be of importance as it might show that the food disinflation which started in late October has continued.

Elevated headline CPI and the optical stabilisation of economic growth could provide a welcome excuse for the CBR to keep policy rates on hold. We expect slightly more dovish rhetoric and look for additional measures to improve the liquidity environment. In our view, easing inflationary pressure in early 2014 on the backdrop of a still stagnant growth environment will push the CBR to reverse its hawkish stance and start the rate-cutting cycle already in 1Q14.

Elsewhere in the CEMEEA space, the NBP is likely to keep its key policy rate unchanged at a record low 2.5%, as Poland continues to face the same environment of non-existent inflationary pressure (CPI slowed 0.1pp to 1.0% YoY in September vs. a targeted level of 2.5%) and yet anaemic growth recovery. In the meantime, the dilemma facing the CNB, which long ago entered into ZIRP territory, is whether to ease monetary conditions further by direct interventions on the FX market. We believe the risk of deflation is key to resolving this dilemma and while a persistent disinflation trend increases the odds of an FX intervention, the CNB is perhaps not ready to pull the trigger just yet.

Vladimir Kolychev, Daria Isakova
VTB Capital analyst

CPI, CBR, FX market

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