Geopolitical tensions have again been at the centre of market focus over the last two months with both the US/EU and Russia switching to the language of sanctions.
Restrained access to capital – not a crisis, but growth outlook darkens. While far from triggering a full-blown BoP crisis, tighter access to western capital markets will take its toll on the economy, propagating through financial and confidence channels. We trim our 2015 GDP growth forecast to 1.5% (2.6%, previously) and retain 0.0% for 2014.
Food import ban to keep inflation and rates higher for longer. The impact from food import bans has pushed CPI up by more than 1pp so far this year and its ‘contribution’ is set to increase to 2.5pp. We revise our CPI forecasts up to 8.0% in 2014 and 5.0% in 2015. Changes to the tax policy might bring additional upside risk for 2015. The CBR is set to retain its tightening bias and keep rates higher for longer.
Policy uncertainty on the rise. Recent initiatives on budget (pension, taxes), tariff and trade policies all blur visibility on the broad domestic policy direction, which will weigh on willingness to take risks and invest.
Month ahead: September will see policy debate intensifying as important decisions on tax policy and budget spending priorities will have to be taken before the Budget Law is submitted to the State Duma. Debates on the CBR mandate and its implementation will also likely be in focus as policymakers prepare the CBR’s medium-term policy guidelines.