CBR’s meeting: +25 bp; FX purchases for Minfin will be postponed till 2019

RUSSIA ENERGY / FINANCE - In Brief 14 Sep 2018 by Marcel Salikhov

CBR decided to increase the key rate by 25 b.p. on today's meeting. The move was already priced in by the markets so monetary authorities basically had no other option but to deliver. General sentiment of the press-conference was pretty hawkish as Governor Nabiullina was trying to show that central bank is ready to act and will resist any pressure (earlier A. Belousov, aide to the President, publicly stated that the rate hike is not ‘desirable’). Chart 1 . Money market and policy rates (January 3, 2017 - September 14, 2018)In the press-release it was stated that RUB deprecation increased inflationary risks which is a major motivation for the hike. According to CBR, inflation is expected to reach 3.8-4.2% by year-end and to increase to 5-5.5% in 2019 but to get back to 4% target in 2020. Governor Nabiullina noted that futher increases are possible if inflation surprises on the upside. As current funding rates are generally higher than nominal value of key rate such a symbolic move will not have negative consequences for the economy but will help to bring stability for investors. So market reaction was positive after the decison was announced. Chart 2. CBR's FX purchases for Minfin in 2018The more important news is that CBR will not by FX on the market for Minfin’s till 2019. CBR announced earlier that purchases will be temporarily stopped in September 2018. YTD CBR bought about $28 bln implementing fiscal rule for Ministry of Finance. The rule formally will stay in place but will be carried through CBR-Minfin transactions. The consequence of this decision is that CBR’s FX reserves will be roughly stable till year-end. The decision is positive for RUB.

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