CBR cut 25 bp, to 6.25%; we expect a pause next meeting

RUSSIA ENERGY / FINANCE - In Brief 16 Dec 2019 by Marcel Salikhov

CBR’s Board of Directors decided to cut the key rate by 25 bp, to 6.25% and updated its macroeconomic forecast last Friday. It’s the fifth cut in 2019 bringing the total amount of easing this year to 150 bp, from 7.75% to 6.25%. We expect that CBR will take a pause next meeting (February 17, 2020) and will take another cut next meeting (March 20, 2020) or the April one (April 24, 2020). Weak inflation data probably influenced the last move. November monthly CPI was +0.3% m-o-m. The annual figure was +3.5% y-o-y below 4% target. Based on available weekly data, December 2019 annual figure will be close to 3% y-o-y. We expect a further decline in annual inflation in 1Q20, somewhere to 2.5%. Inflation will peak out in 2Q20 and will gradually start to increase. It will ease the pressure on CBR. We expect that by 2Q20 the key rate will reach 6.0%. According to the most recent CBR forecast, monetary authorities expect inflation to stay in 3.5-4.0% range in 2020 (i.e. to the lower range of the target) and assume GDP growth of 1.5-2.0% next year.On Friday’s press-conference, CBR governor Elvira Nabiullina stated that CBR considers lowering its estimate of the real natural rate (currently it is 2-3% range) but it will take some type and will depend on incoming economic data. We read it that possible further easing may happen in 2H20. Chart. Major policy and money market rates in 2019

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