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Macro week ahead – hawkish CBR on hold – NBH tempted to ease further

Central bankers' meetings in Russia and Hungary are in focus this week, while the statistical agenda is rather light, with the June CPI report from South Africa and the weekly CPI in Russia of most interest.

The CBR is likely to stay on hold, according to consensus, although hawkish rhetoric is here to stay, especially in light of still elevated food inflation. Renewed pressure on RUB, following the recent escalation in geopolitical tensions once again, complicates matters, but the CBR is unlikely to react unless RUB gravitates closer to the upper bound of the corridor (42.45-43.40). Besides, the relatively sanguine language from Chairwoman Elvira Nabiullina regarding the reaction to one-off shocks suggests there is not much appetite left for additional tightening. Overall, we think that unless sanctions-related capital outflows prove extreme, the CBR will remain firmly on hold until 4Q14, taking time to assess the pace of disinflation and waiting for more clarity on tariff and tax policy for 2015-16.

Tomorrow, the MPC of Hungary’s central bank might act on Europe’s longest uninterrupted monetary-easing cycle with another 10bp cut in the base rate, especially amid strengthening deflation. To recap, in its previous statement the MPC noted that “there remained room for further cautious easing of monetary policy”, but we believe that the end of the easing cycle is close at hand as the economic recovery gathers steam. The Bloomberg consensus sees the first hikes closer to the yearend, though we are more conservative and expect them to happen closer to the middle of next year, when the regulator is likely to take more comfort from dissipating deflation risks and a robust improvement in demand.

Inflation in South Africa has exceeded the central bank’s 3-6% YoY target in April-May, and June is likely to follow suit on the back of a weak rand, high wage settlements and rising food costs. The SABR sees the headline inflation falling below the upper band only in 2Q15.

Daria Isakova, Vladimir Kolychev
VTB Capital analyst


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