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Macro week ahead - CBR likely to ease key rate a further 50bp


The main event to watch this week is the CBR’s BoD meeting, which will take place on Friday. Otherwise, the statistical agenda for Russia is rather light with only the weekly CPI report scheduled for Wednesday.

Elsewhere in CEMEEA, SA and Hungary report unemployment figures on Tuesday and Wednesday, respectively, while SA and Turkey will publish trade balance data on Friday.

Our estimates suggest that the CBR is likely to decelerate the rate of interest rate normalisation and bring the key rate to 11.0% on 31 July.

In our view the CBR is likely to keep the real interest rate at 4.0-4.5% thus providing no change to its monetary policy stance but decreasing the 12m ahead inflation forecast to 6.0-6.5% and as a result the key rate by 50bp.

The Bloomberg compiled consensus also firmly favours a 50 bp key rate cut.

At the interim policy meeting, the CBR is likely to rely on the updates to the two competing scenarios that were introduced at the last Monetary policy report. To recap the first scenario assumed the recovery of the oil price to 80 USD/bbl in 2018, while the second was built assuming oil prices have fallen to new equilibrium levels at 60 USD/bbl and are set to remain at that level on average up to 2018.

These two outlooks imply different conclusions as to the cyclical nature of the slowdown and provide different advice on the path of interest rate normalisation. That is if the lower commodity prices are temporary then the gap between longer term potential output and current level of economic activity is significant, calling for a more front-loaded normalisation of the key rate. Otherwise, the output gap estimate will tend to be less significant putting more emphasis on elevated inflation and a smoother path of interest rate cuts.

At this interim meeting, the CBR will accompany its decision with a press release (but no Monetary policy report), which will provide more insight into the CBR’s perspective on the events that have taken place since the last forecast was presented as well as their impact on the 12m ahead inflation outlook.

Alexander Isakov, Petr Grishin
VTB Capital analysts


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