CBR keeps rates unchanged

RUSSIA ENERGY / FINANCE - In Brief 30 Oct 2015 by Marcel Salikhov
As we have expected CBR’s Board of Directors decided today to keep rates on hold ‘given significant inflationary risks’ but hinted on future cut at December meeting. We think that the decision on the cut will be based mainly on October-November CPI data. Disinflationary hopes of CBR are based mainly on weak domestic demand and decline of real household incomes. But if inflation stays high in coming months CBR may decide to stay on hold one more meeting. In accompanying press-release monetary authorities said that expect inflation to decline ‘below 7%’ next October. We see this forecast as too optimistic and partially as a desire to influence inflationary expectations. Weak RUB and so tight monetary policy will not allow to reach CBR’s targets. But there are also some new disinflationary factors to keep in mind. First, the budget submitted to the State Duma last week is generally tight. Pensions are set to be indexed by 4% (compared to 10%+ asked by the the ‘social’ ministries). One more round of indexation in 2H16 is conditioned on the budget revenues. Wages in the public sector are set to be frozen. Second, Federal Antimonopoly Service (FAS) which is a new regulator for tariffs (instead of FST) target lower rates of increases. It’s not yet unclear whether it can stand against the powerful lobbyists but at least their targets are much more ambitious. Risks of large increases in regulated tariffs have become lower.

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