Expected rate cut from CBR

RUSSIA ENERGY / FINANCE - In Brief 13 Mar 2015 by Marcel Salikhov

CBR decided to today to cut its key rate by 100 b.p., from 15% to 14% exactly as we have forecasted last week. In the light of previous remarks by Deputy Governor D. Tulin the cut was expected by the markets and was ‘priced in’. Market consensus was for 100-200 b.p. cut ahead of the meeting. CBR’s press release cited decline in inflation (Feb: +2.2% m-o-m vs +3.8% m-o-m in January) and decline in M2 growth rates as major factors supporting the decision. As we have stated earlier recent decisions confirm our view that formal inflation targeting regime started in 2015 in not a de facto policy of CBR. Monetary authorities still pursue dual goals with stimulating economy going ahead of inflation targets. RUB stayed firm today despite negative sentiment from oil prices. Oil prices and domestic inflation in March-April will be major factors influencing decision of the next meeting (scheduled for April, 30th). Oil prices higher than $60/barrel and lower inflation in next 1,5 month will give ground for more aggressive cut. CBR published some highlights of its updated macroeconomic forecast. Monetary authorities expect that GDP will decline 3.5-4.0% in 2015 and 1.0-1.6% in 2016. It’s expected that economic growth will resume only in 2017 on the back of higher oil prices ($70-75), import substitution and diversification of external financing sources. Somehow surprisingly CBR expects that growth rates will reach 5.5-6.3% (!) in 2017 but reasons for such optimism remain murky. For example, there’s no clear explanation on the sanctions assumptions used in the forecast.

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