Expect CBR to stay on hold tomorrow

RUSSIA ENERGY / FINANCE - In Brief 13 Dec 2018 by Marcel Salikhov

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Tomorrow will be the last meeting of the CBR´s Board of Directors this year. The meeting will be accompanied with the update of macroeconomic forecasts. At the moment there is no general consensus one the decision. Some expect CBR to stay on hold. Others call for a 25 bp hike, to 7.75%. RUONIA futures show 80% probability of the hike tomorrow. There is a rational why CBR may choose to hike. Inflation clearly accelerated almost reached 4% target. It will also continue to increase in 1Q19. There is increased sanctions rhetoric and lower oil prices. Many associate the rate hake with upcoming renewal of FX intervention for the budget rule. However, the inflow of currency in the BoP in 1Q19 should level off the actions of the Minfin. According to the latest estimates from CBR, the current account surplus for January-November 2018 was amounted to $ 104.3 billion. For the whole year, the current account surplus will be close to 6% of GDP. A strong surplus remained, despite the decline in oil prices in recent months due to the reduction in consumer and investment imports in 3Q18. Moreover, oil prices have fallen dramatically, so the volume of currency purchases will be significantly reduced. So we don´t fell that it can justify the hike. 4Q18 was remarkably stable in terms of FX and domestic financial markets. Inflation expectations remained at low levels. There is no urgent need for the current rate increase. Moreover, based on the inflation shock in early 2019 and the resumption of the regulator, it is necessary to leave room for maneuver. Therefore, we expect the Central Bank to stay on hold tomorrow.