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CBR policy meeting – expectations high than ever

The pressure to deliver bold policy action has increased significantly over the last two weeks, following the brisk decline in oil prices and consequent pressure on the currency. We believe the CBR is unlikely to put off raising interest rates substantially in an attempt to stem FX volatility. We expect another 150bp hike in the key policy rate and do not rule out the regulator lifting the cap of the rates corridor further, guiding for a more significant increase in short-term money market rates. Given the speed at which RUB dropped, however, the market is unlikely to be impressed with anything less than 300-400bp (NDFs were pricing rates around 18% yesterday). In this environment, the CBR might as well go for non-conventional measures and lift the cap on the rates corridor (FX swap rates) more significantly, expanding the difference with the key rate to 300bp from 100bp now. In our view, more resolute action to replenish the system with dollar liquidity could be a less costly alternative then widening the rates corridor, but recent communication does not suggest that the CBR is likely to act in this direction just now.
Maxim Korovin, Tatiana Zueva
VTB Capital analyst


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