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Macro week ahead – CBR's reaction to re-intensifying pressures on RUB

Re-intensifying pressures on RUB require additional policy action on top of the rate hike last Friday to stabilise the situation on the FX market, but it remains to be seen whether the CBR is prepared to act quickly. Apart from the CBR's potential reaction, we await monetary policy decisions in Poland and the Czech Republic, as well as a fresh CPI report for October from Rosstat.

Pressure on RUB intensified again late last Friday and early this week amid softening oil quotes and an escalation in geopolitical tensions. This could also highlight that the recent bout of capital outflow might not necessarily be highly sensitive to rates (at least in the short term), suggesting that protecting RUB via higher rates might be of limited effect at the current juncture. We think the next likely policy action in this regards could involve changes to the intervention policy as well as the expansion and the fine-tuning of USD refinancing facilities, but whether the regulator is prepared to act quickly remains to be seen.

On the data front, locally we expect headline inflation to accelerate to 8.4% in October, in line with the recent weekly CPI prints. The impact of the restrictions on food imports is likely to have been the most important driver, as seen in the mix of soaring food inflation but surprisingly well-behaved core part of the consumer basket. Looking ahead, although the impact from the trade bans is set to peak soon, inflation is bound to accelerate further towards double digits through 1Q15 on the back of the decline in oil prices and consequent currency depreciation. Looking through this short-term spike, however, we are not concerned about its impact on medium-term inflation expectations given the shocks’ (both food and oil) disinflationary impact on incomes as well as the persistent slide in nominal wages growth.

Across CEEMEA, the market is likely to focus on central bank meetings in Poland and the Czech Republic. The latter is likely to stay on hold and leave the parameters (level and timing) of its commitment to one-sided FX peg unchanged, although the tone of the language might tilt a tad more to the dovish side in light of the likely downgrade to inflation forecasts amid lower commodity prices and choking recovery in the Euro Area. The Polish MPC has more room to react (it is still some way off the ZIRP boundary) and might also cut the key policy rate another 25bp (after the 50bp cut in October), particularly given that the updated forecasts are likely to feature both a softer growth outlook on the back of external shocks as well as a protracted period of below-target inflation on the back of persistent positive supply-side shocks (lower energy and other commodity prices, food deflation).

Daria Isakova, Vladimir Kolychev
VTB Capital analyst

CBR, ruble

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