CBR keeps rates unchanged, no signs of future tightening

RUSSIA ENERGY / FINANCE - In Brief 11 Sep 2015 by Marcel Salikhov
As we have expected, CBR decided today to stay on hold and keep interest rates unchanged. The bank left key rate at 11% after five consecutive cuts since February. The decision was widely expected as current situation presents dilemma for monetary authorities. RUB declined more than 25% against USD since mid-May. The depreciation presents clear inflationary threat but CBR is pulled apart by variety of goals. Inflation targeting mandate is not year really implemented. Another inflationary risk is connected to possible weakening of the fiscal policy. As new election cycle is coming in it will be harder for the Government to justify conservative policy on pensions and public wages indexation. In the accompanying press-release we haven’t seen hints of possible tightening in the future. CBR forecasts that inflation will decrease to 7% in September 2016. We see it unlikely without significant increase in oil prices (above $60+/barrel).But the next monetary meeting is scheduled for October 30th after the Government submits draft budget for 2016 (October 25th). If the budget provisions fiscal accommodation, it could warrant actions from CBR .

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