We expect no move from CBR tomorrow

RUSSIA ENERGY / FINANCE - In Brief 29 Oct 2015 by Marcel Salikhov

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CBR’s Board of Directions will have another meeting on monetary policy tomorrow. Bloomberg survey is split between those expecting CBR to hold rates and those expecting 50 b.p. While acknowledging that there’s more rationale for the cut compared to September meeting we expect CBR to stand still tomorrow. First, inflation is still high. September CPI was +0.6% m-o-m (15.7% y-o-y). Weekly inflation estimates for October show that consumer prices rose 0.7% m-o-m. There is certain margin of error in weekly CPI data (it covers smaller basket and is representative only for large cities). But one can be sure that’s there’s still no persistent decline in inflation. Previously we have argued that current EPRT effect is larger that is estimated by CBR. Second, inflationary expectations are keep rising. Recent consumer survey showed that inflationary expectations for next 12 months rose from 13.9% in August to 14.7% in September. Median expectations for next year inflation rose 1.2 p.p., to 16%. Third, oil prices are at low levels and have influence on RUB. Last week it seemed for some time that RUB/USD can stay 62-63 even with Brent prices below $50/barrel. But only possibility of the rate cuts drove RUB/USD to 64-65 this week. We expect further RUB depreciation if CBR decides to cut rates tomorrow. The move is not ‘priced in’ to the full extent, so RUB will be under pressure. Fourth, last week Deputy chairman responsible for monetary policy Dmitry Tulin made a speech in the State Duma. There were no obvious remarks on future rate decision but the tone of his comments made us to conclude that the cut is unlikely.