CBR Monetary Policy Decision - Sledge-hammer credibility?
On Friday, the CBR announced an unexpected 50bp hike in all rates, with the key rate at 7.50% from 25 April, as a response to elevated inflation and risks for its FY14 target. Respectively, FX swap now costs 8.50%, while the deposit rate is 6.50%.
On a separate note, the regulator introduced a new refinancing facility for large banks (with > RUB 50bn capital): 3-year loans at 6.5% backed by investment projects.
We believe the rationale behind sending this strong message is primarily driven by credibility considerations, although we doubt the CBR’s credibility was in any way questioned after its bold move in March. The central bank has guided for no rate cuts over the coming months, and we do not think that rate hikes will be on the agenda unless there is severe pressure on the rouble. Looking beyond the short term, we expect significant disinflation and, hence, substantial policy easing; however, the timing looks uncertain and, while tentatively pencilling in 100bp cuts in 2H14, we recognise that the risks are tilted to the later part of the year. Additionally, the CBR has introduced a new LTRO refinancing facility, the potential of which is yet to be explored.
Maxim Korovin, Anton Nikitin
VTB Capital analyst
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