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CBR officials on monetary policy reaction function


Yesterday, CBR First Deputy Governor Dmitry Tulin, who took office in January and assumed responsibility for monetary policy from Ksenia Yudaeva, made some comments on monetary policy in an interview with Reuters. First, he said that monetary policy is tight, if one considers February’s macro statistics. In addition, he mentioned that March’s monetary decision would depend on the latest data, and Wednesday’s CPI report showed that the average daily price growth dived to 0.2% (from 0.6% a week ago). He also added that the regulator sees “nothing terrible”, if inflation spikes to 20% in 2Q15, since inflation expectations show signs of easing and the CBR forecasts CPI to decline to 10% in 1Q16. Under this framework, the current level of interest rates in Russia should be considered by the CBR as markedly above zero, which undermines the real economy’s growth prospects, already suffering from the decline of crude oil prices. Separately, Alexei Simanovsky, also a CBR First Deputy Governor, said that the regulator is taking into account the outlook for inflation in making its rate decision and that the CBR is not interested in keeping the policy rate very high. In our view, the CBR’s comments increase the probability of a rate cut next week, which could equal up to 100bp, we think.

In the light of this, NDF rates tightened further by about 50-60bp yesterday, with 6M NDF closed at 16.0%, while 9M NDF ended at 15.4%. The overnight FX swap also continued to decline with the weighted-average rate for the whole session recorded at 15.59% (-5bp). Yet, in the end, it still spiked to 16.1%, and banks borrowed RUB 10bn in the FX swap window from the CBR. The situation with banking liquidity remains relatively tense, despite the injections of budget and pension money, as yesterday banks cut the volume of 312-P by RUB 422bn. In turn, banks secured RUB 700bn at the CBR’s 3-month 312-P refinancing auction and RUB 160bn from the Treasury for one-week deposits. We estimate the net liquidity injection would be near RUB 350bn, since more redemptions of 312-P debt are to come within a week.

Maxim Korovin, Tatiana Zueva
VTB Capital analysts

money market, CBR

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