CBR stayed on hold due to higher inflation

RUSSIA ENERGY / FINANCE - In Brief 18 Dec 2020 by Marcel Salikhov
CBR's Board of Directors decided today to keep the key rate unchanged at 4.25%. The decision was widely expected. The most significant part of today's news is that CBR toughened its rhetoric. The Board is no longer sure that there is a potential for further cuts and will "assess" it.CBR has dramatically increased its forecast for annual inflation for 2020. At the last meeting, the regulator predicted that the year-end inflation would be in the range of 3.9-4.2%. Now the inflation forecast for 2020 has risen to 4.6-4.9%. Moreover, the Central Bank noted that deflation risks are no longer as significant as a month ago. According to the monetary authorities, the growth of inflationary expectations may result in consumers buying goods more ar reserve, further accelerating inflation.In recent weeks, food price increases have attracted the Government's attention, which has proposed several measures. They boil down to establishing maximum purchase and retail prices for some goods (sugar, sunflower oil). Besides, to stabilize prices for flour and bread, the Government will set a quota of 17.5 million tons to export wheat, rye, barley, and corn.Prime Minister Mikhail Mishustin signed a resolution this week, which set out mechanisms to curb the rise in prices for so-called "socially important products". So, until 1Q21, the maximum prices for sunflower oil and sugar will be set, and a quota and duties on grain exports will be introduced.We believe that the effect of price regulation is only possible in the short term. These measures may lead to formal price stabilization in the nearest future, at least for calculating the CPI. However, experience shows that attempts to regulate p...

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