Russia: the CBR left rates unchanged in Nov as expected

Russia: the CBR left rates unchanged in Nov as expected

In Russia, the CBR made decision to leave all key rates (depo, repo and refi) unchanged in November. This decision has been highly expected as CPI inflation slowed to 6.5%y/y in October, providing the CBR time for manoeuvre. However, we generally see October's relief in food price pressure as temporary and expect a new round of food inflation soon, resulting in a new acceleration of CPI inflation. This makes monetary tightening likely. We expect the CBR to hike rates by 25bp in Dec and see refi rate at 8.5% by 2012-end (flat in 2013). The decision is planned to in the first ten days of Dec (presumably, 7 Dec 2012).

At the same time, the CBR's comments of the decision expressed less concerns on inflation risks than it was seen in September-October. The comment stated that September's hike helped to suppress inflation expectations. The bank has recently increased its inflation forecast from 6% to 7%y/y at 2012-end, which also may make tightening less urgent for the CBR. Nevertheless, the CBR estimated negative impact of September's hike on economic growth and risks of economic slowdown as ignorable. With an acceleration of CPI in Nov-Dec and beyond, the bank should continue tightening in the nearest future, in our view.

Julia Tsepliaeva
Head of Market Economics Russia and CIS