CBR cuts 50 b.p. to 6.5%. Will the be another cut in December?

RUSSIA ENERGY / FINANCE - In Brief 25 Oct 2019 by Marcel Salikhov

CBR cut aggressively 50 bp, to 6.5%, on today’s meeting. The move was widely expected after Elvira Nabiullina hinted 'agressive actions' on October 17 interview to CNBC. CBR also cut its inflation forecast for 2019 from 4.0-4.5% which looked inadequate to a more reasonable 3.2-3.7% range. In 2020 CBR expects 3.5-4.0% inflation and "below" 3% in 1Q20. There are several reasons for a much more dovish monetary stance from CBR. First, household inflationary expectations started to decrease in the last several months. Based on the October survey median estimate for future 12-month inflation was 8.6% vs 9.4% in July 2019. Second, CBR got assurance that there will be no massive stimulus of NWF funds spending next year. In early October Finance minister Anton Siluanov stated that ~400 bln RUB will be spent next year. As inflation continued to stay weak in October (based on weekly data) after September monthly deflation, it gave extra confidence to monetary authorities. A rapid and strange increase in real incomes in 3Q19 (+3.3% y-o-y) was met with extreme by most independent economists, including us. CBR has also not bought a story of economic acceleration in 3Q19. That's why 50 bp cut has followed. The cut was already priced in OFZ markets before the actual decision today. So market reaction was relatively calm. We think that the December decision will be mainly influenced by the level of Fed easing in October and December. So CBR wants to free hands in either direction. We think further cut of 25 bp is possible. Chart. Money market and policy interest rates, January 2018 - October 2019Source: CBR

Now read on...

Register to sample a report

Register