The CBR’s Board of Directors gathers to set the key rate today, with the decision to be published at 13.30, Moscow time. Rosstat publishes hard data for May, starting with IP on Tuesday and then the rest of the package (including real wages, real retail sales and FAI) on Thursday. Inflation data for May is to be made available for Poland and South Africa.
The main event this week is the meeting of the CBR’s Board of Directors. While the inflation data provides ample evidence of entrenched disinflation, with the most recent weekly print recording no price change at all, we expect the CBR to slow the pace of key rate cuts down. The estimated range of the cuts to be announced is 50-100bp. The reasons for a smaller cut than before are i) a lack of dovish surprises in the data since the last decision, as all prints were in line with the trends set at the beginning of April and ii) the trade-off between easing provided through reserve accumulation and rate cuts. In the latter sense, the CBR’s decision could be indicative of the preferred balance for normalising the key rate level and the level of international reserves, given that the announced timeline for reaching target inflation is unchanged. For more details, see our CBR Monetary Policy Preview Choosing the easing channel mix, of 11 June.
We anticipate IP production bouncing back after unexpectedly dropping 4.5% YoY in April to -3.0%, matching the better outlook in the early indicators. Unemployment is likely to stay flat at 5.8% which would mean a further deterioration in seasonally adjusted terms; real wages might be starting to bottom out as inflation is losing momentum, while nominal wage growth will stay close to its record lows (1% YoY in April), in our view. The FAI correction is still underway and we estimate it decreasing further from -4.8% YoY in April to -5.4%. Views on investments are the most polarized at the moment, with the ‘-8.0%’ and ‘-5.5%’ camps attracting roughly equal membership; we join the latter on the grounds that the lower base effect, declining labour costs and higher profit margins might have cushioned some of the steep real rates pressure.