CBR likely to remain on hold on Friday – TDS

Rates, FX and Commodities Research team at TD Securities sees the Russian central bank keeping its monetary stance unchanged at Friday’s meeting.

Key Quotes

“The Russian rate decision on Friday is not nearly so clear cut. At its June meeting the CBR cut its Key Rate by 50 bps to 10.5%; this was the first cut since July of last year”.

“The CBR has been adopting a cautious stance, even as the ruble has been strengthening, keeping its eyes on achieving the 4% inflation target by the end of 2017”.

“The CBR felt they could cut in June because of “positive trends of more stable inflation, decreased inflation expectations and inflation risks against the backdrop of imminent growth recovery in the economy.”

“Since the June meeting the ruble has appreciated by 1% against the US dollar even as Brent oil has fallen by 10%. The ruble seems to have benefitted from the Russian economy’s perceived immunity to Brexit, as well as to all the other turmoil in the EMEA region”.

“CPI inflation moved up slightly to 7.5% Y/Y in June from a prior 7.3%, but should start moving down over the rest of the year”.

“The consensus expects the CBR to be on hold on Friday, although 8 out of 37 respondents to the Bloomberg survey expect the CBR to cut again by 50 bps. We think it is pretty much a coin toss whether they cut or not.. However, if they do not cut on Friday then it is highly likely that they will cut at the September meeting”.