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CBR Monetary Policy Decision

On Friday, the CBR decided to keep its key rate at 5.5%, as was widely expected.
Our View: The tone of the accompanying statement was almost unchanged; the shift to forward-looking language was of the most interest. The lack of additional steps to ease liquidity conditions suggests tensions on the money market are likely to persist through the rest of the year. We maintain our call for the first rate cut in 1Q14.

We still expect the first cut in 1Q14. We believe there are two possible triggers for a rate cut: i) a discouraging enough 3Q13 GDP reading (to be released on 12-13 November) and ii) moderation in inflation expectations. The former is not our basecase, as the surge in gas exports and the favourable base effect in agriculture as well as only gradual moderation in consumer spending are likely to keep GDP growth optically stable. The latter is likely, but not before 1Q14, when the impact from the recent pick-up in food inflation and tariff hikes fades away. Hence, we are comfortable with our call for the first rate cut in 1Q14.
Vladimir Kolychev, Daria Isakova
VTB Capital analyst

CBR, GDP, liquidity

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