Russia Outlook and Central Bank

The main event this week is the central bank’s rate-setting meeting on Friday (16 December). We expect the central bank (CBR) to leave the policy rate unchanged, in line with the CBR’s previous commitment to refrain from policy easing until 1Q-2Q 2017. In our view, the meeting will be crucial in terms of the signal it might provide for the prospects of policy easing in 2017, in the aftermath of the OPEC’s 30 November agreement to cut oil output. Furthermore, the outlook on oil prices will shape the CBR’s forecast revisions that are due to be published the same day in the Quarterly Monetary Policy Report. We believe the CBR will be more optimistic on the pace of recovery in economic activity, as well as more comfortable on the attainability of its 4% inflation target in 2017. We think the CBR will also make a hint this Friday with regards to a possible policy rate cut in the first meeting of 2017 (3 February).

Also this week, the focus will be on the following economic data releases:

 ? Tomorrow, Rosstat will publish the second estimate of 3Q real GDP data and its supply-side breakdown. According to the preliminary estimate, the pace of contraction in real GDP fell to 0.4% yoy in 3Q from 0.6% yoy in 2Q. We expect Rosstat to confirm the preliminary estimate.

? At some point this week, the Finance Ministry will publish the federal budget execution data for November. On a 12-month rolling basis, we expect the federal budget deficit to widen in November from 3.6% of GDP in October.

? On Thursday (15 December), Rosstat will publish the November industrial output data. We expect industrial production to have picked up in seasonally adjusted terms in November, in line with the strong manufacturing PMI data since July 2016.