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Macro week ahead – CBR monetary policy meeting


This week, all CEE3 countries are scheduled to release February CPI data. In Russia, Rosstat is to publish its weekly CPI estimate (for 3-10 March) on Thursday, the AEB is to present February car sales data and the Ministry of Finance is to release budget execution numbers for last month. Data on external trade in January are due for most of our CEEMEA universe (Russia, Turkey, Hungary and the Czech Republic). The CBR is to hold its monetary policy meeting on 13 March.

The main focus this week is on the CBR monetary policy meeting. Recent dataflow has seen further evidence of fast normalisation in the sequential inflation run rate, which slowed to 1.9% MoM SA in February (vs. 3.4% in January) and broad-based moderation across different parts of the basket. Development of less benign second round inflationary effects is shown to be increasingly unlikely, as evidenced by a wage indexation freeze for public sector employees in 2015, the subdued wage intentions in the private sector reported by recent surveys, and January-February data on consumer spending and household income growth. In addition, the retail deposit base had already started to pick up in January (FX- and seasonally-adjusted) signalling stabilisation of devaluation expectations.

Overall, the incoming evidence has so far been benign and supportive of faster policy normalisation. Meantime, risks to financial stability from a protracted credit crunch are on the rise suggesting that a more rapid reversal of emergency policy tightening is justified. We therefore expect the CBR to cut its key policy rate 150bp this Friday and overall believe that the balance of risks is tilted toward a front-loaded path of interest rate normalisation (for detail see our CBR Monetary Policy Preview).

Auto sales in Russia are expected to show another double digit drop – as evidenced by AvtoVAZ figures published last week – on the back of lower disposable incomes, higher interest rates and tighter lending standards.

CPI figures due on Thursday are expected to show an increase in the headline to 16.8% YoY, while the run rate will stay level.

In CEE, price growth rates are expected to remain at the levels observed in January, with continuing deflation in Hungary and Poland, and near zero positive inflation in the Czech Republic and Romania. Negative inflation rates in Hungary and Poland are expected to persist until 4Q15. We expect the return of inflation rates to their target levels across the CEE in 2016 on the back of dovish monetary policy, weak exchange rates and positive growth of oil prices.

Vlabimir Kolychev, Alexander Isakov
VTB Capital analysts


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