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Macro week ahead: RUB devaluation spill-over into November stats


Rosstat is to publish its monthly report for November this week, the CBR is to present its flagship quarterly monetary policy report, while the MPCs in Hungary is to take decisions on rates.

The November monthly report from Rosstat is the heavyweight on the data front this week. IP is likely to have remained supported to some extent by import substitution, defence (re-armament) and infrastructure spending, while on the demand side, the impact of sharp currency depreciation following the decline in oil prices is likely to have distorted the ordinary behaviour of the economic agents once again. Similar to October, retail sales seem to have been propped up by demand for discretionary non-food categories as households are looking to preserve value of their devaluing RUB savings in real assets (housing, cars, consumer electronics, home appliances, etc) before the imminent price hikes for imported products. This might provide only a temporary respite for the consumer sector, though, as shrinking disposable income is likely to result in significant cutbacks in discretionary consumer spending into 2015. On the corporate side, companies are likely to have cut capex outlays and set aside more funds for a rainy day (this is also likely to be in FX, rather than RUB deposits/accounts). This type of herd behaviour on the part of households and the corporate sector tends to accentuate trends on the FX market during periods of adjustment to external shocks and demands involvement from the CBR before it morphs into a self-sustaining spiral of devaluation expectations and risks financial stability.

It would be interesting to scrutinise the CBR's flagship quarterly monetary policy report to be published early this week in that regards. Governor Nabiullina sounded fairly balanced last week as regards the CBR's reaction function, reiterating that interest rates, guided by inflation considerations, will remain the main anchor, while temporary FX shortage and volatility are to be accommodated via FX reserves (either via lending and/or outright interventions). The policy action since then, however, was strikingly different as RUB dipped deeper into the undervalued zone on Friday, with seemingly little resistance from the CBR and the regulator left FX swap limit unchanged (USD 2bn), which threatens to bring about a squeeze of RUB liquidity and consequent spike in short-term interest rates. Overall, we believe that the risks to policy rates will remain biased to the upside unless the CBR acts more resolutely to bring back stability on the FX market.

Elsewhere, in the CE3 region, the MPC meeting in Hungary is likely to be the main focus this week. The last time Hungary cut rates was in July and since then the MPC has kept its rate guidance unchanged, promising to maintain current loose monetary conditions for an extended period. The balance of risks has shifted more to the dovish side in our view. Declining commodity prices, rising growth concerns in the EU as well as moderation in growth momentum locally all point to more rate cuts in the months to come from the pure growth-inflation perspective. However, we would not expect any rate changes just now, but would rather be looking for signs of tweaks in the official language and forward rate guidance.

Vladimir Kolychev
VTB Capital analyst

CBR, Rosstat

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