resim2

 

Central Bank of Russia This Week and the RUB

 

This week the main event is the central bank’s (CBR) rate-setting meeting on Friday (28 October). We do not expect the CBR to cut the policy rate this year, in line with the CBR’s previous statement, in which it ruled out further policy easing until 1Q-2Q 2017. Although the CBR has ruled out any policy action in 2016, it does not mean the meeting will not be watched closely by investors. In our view, in its statement, the CBR has to find the right balance between the impact of higher oil prices, recent recovery in consumer demand indicators (especially against weak supply-side data) and the recent fiscal policy discussions (that eventually may not be as favorable for the CBR’s 4% inflation target). We believe the CBR is going to play down the sustainability of the recent recovery in oil prices while focusing more on the latter two factors (real sector data and fiscal policy discussions) as a significant risk to its 4% inflation target in 2017. In our view, the impact of the actual inflation data on the CBR’s stance should be either neutral or negative, mainly because there was no favorable pass-through to inflation from the stronger rouble. Overall, we think that the CBR’s statement will be more hawkish than the previous one.