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Central Bank to take a break: The market does not expect a change in the key rate – Cbonds consensus forecast

October 26, 2018 | Cbonds

Today, on October 26th, the seventh meeting of the Bank of Russia on monetary policy of this year will be held, at which a decision will be made concerning the amount of the key rate. In September, the Bank of Russia raised its key rate by 25 basic points – up to 7.5% per annum.

In the press release associated with the September decision, the Central Bank clarified that it would assess the feasibility of further raising the rate based on the dynamics of inflation and the economy as a whole. On monthly results, the annual inflation rate was 3.4%, which is in line with the forecasts of the regulator and does not require the tightening of monetary policy.

The factors raising the key rate were also risks from external conditions and the reaction of financial markets to them. In the October bulletin of the Research and Forecasting Department of the Bank of Russia, the mega-regulator indicates the stabilization of the situation on the financial market: “September decisions to raise the key rate by 25 basic points and the suspension of foreign currency purchases on the domestic market served as a positive signal providing stabilizing support to the financial market. ”

Taking into account the current level of inflation and a decrease in instability on the market, most analysts expect the key rate to remain at the level of 7.5%. However, political factors and signals of the banking market may become prerequisites for further changes in the indicator.
“I expect the Central Bank of the Russian Federation to keep the rate at 7.5%,” says Natalya Orlova, Chief Economist at Alfa Bank – “The economy grew weakly in September: The mining industry went into negative area for the month, the growth rate of retail trade slowed to 2.2%, despite a decrease in unemployment and sustained wage growth. The rate of inflation in this case is 0.1% per week. At this rate of price growth, we are getting through the annual inflation rate of 3.8% at the end of 2018, which does not require further tightening of monetary policy.” 

“According to various consensus forecasts of participants and market experts, most of them do not expect a change in the key rate at the upcoming meeting. We also do not see any compelling reasons for such actions on the part of the regulator, - agrees Alexander Ermak, Chief Analyst of the Debt Markets of the Broker Company REGION – In the setting of unchanged external pressure factors, the situation in the foreign exchange and debt markets stabilized after the previous meeting of the Bank of Russia. At the same time, we expect the retention of harsh rhetoric in the statement of the regulator. In November, there will be a lot of events, following which we do not exclude the possibility of the emergence of new risk factors, which could lead to an increase in the key rate at the latest in the current year December meeting of the Bank of Russia.”

“The Central Bank is likely to leave the key rate unchanged, since inflation still fits within the forecast range of the Central Bank, the economy is not overheated, and the debt and foreign exchange markets calmed down a bit,” – commented Dmitry Dolgin, Chief Economist for Russia and the CIS, ING Wholesale Banking Russia – when it comes to further steps, there is less certainty, since the picture of inflation risks will depend on domestic oil prices, EM risk appetite, and foreign policy.”

Yury Tulinov, Head of Market Research Management and Analytics at ROSBANK, does not expect a rate change: “The rate will remain unchanged. The decision of the Bank of Russia in September was preventive in nature. Since then, the situation on the foreign exchange market returned in large part to normal, the sanction risks have not yet materialized, and the acceleration of inflation is still moderate. As a result, a wait-and-see attitude from the Central Bank will be justified. ”

“The Bank of Russia will most likely keep the key rate at 7.5% per annum at its meeting on Friday,” commented Elena Vasileva-Korzyuk, Head of the Analytical Department at the Investment Company AK BARS Finance. We do not expect a change in the key rate, as from the time of the rate increase in September, the influence of inflationary factors decreased. In particular, the ruble strengthened against the dollar by 3.8%. On the other hand, the statistics for September shows the stagnation of consumer demand, which also means low inflation risks. In particular, real earnings of the population of the Russian Federation in September 2018 did not change as compared with August 2018, and as compared with September 2017, the decline in real earnings of the population of the Russian Federation in September 2018 was 1.5% after a decline of 0.9% in August. In addition, retail sales growth slowed down to 2.2% y/y. Compared with the dynamics of August (2.8%), growth in September slowed down and also turned out to be lower than in the previous four months.”

“Over the past weeks, a number of credit institutions raised interest rates on deposit and loan products, in particular the rate growth for individual players on the banking market was equal to 0.5 pp. It bears reminding that a similar situation was observed on the eve of the previous meeting of the Bank of Russia in mid-September, when the increase in interest rates for products of the largest market players became a harbinger of a rise in the Central Bank's key rate. , – notes Yury Kravchenko, Senior Analyst at Veles Capital, – Meanwhile, by the middle of October, annual inflation accelerated to 3.6% versus 3.1% in August, when the regulator made a decision last time.

At the same time, the situation on the financial markets stabilized recently. The ruble exchange rate, from which the main inflation risks proceeded, strengthened by 4% since the last meeting, geopolitical tensions eased, and the situation on emerging markets is relatively favorable.

We believe that at the next meeting the Central Bank will take a pause and keep the key rate at the level of 7.5% per annum and reserve the possibility of a rate increase for the December "pivotal" meeting. 

Irina Lebedeva, Senior Analyst at Uralsib Bank, also does not expect a change in the key rate: “We do not expect a change in the key rate following the results of the next meeting. First, the acceleration of inflation, although it is happening, but meets the expectations of the Central Bank. Second, the refusal to intervene by the end of the year provided the opportunity to stabilize the exchange rate, and the risks of a sharp weakening of the ruble by the end of the year decreased now. Third, the situation in emerging markets as a whole calmed down in recent weeks, the outflow of funds of non-residents decreased or even unfolded in some segments. All this means that there is no special need for further tightening of monetary policy.”

“At a meeting of the Central Bank in September, hardly anybody expected the regulator to raise the base rate. Until now, this decision is estimated as controversial, - says Konstantin Bushuev, Head of the Market Analysis Department "Otkrytie Broker" – for example, the Brazilian Central Bank, being in a much more economically dangerous position, did not break the rate reduction cycle and left it unchanged. Despite this, BRE, Brazilian bonds and stocks strongly strengthened during the last month. Meanwhile, the Bank of Russia toed the market of the market and raised the base rate. As a result, Russian and global investors may fear that the Russian Central Bank is capable of succumbing to money market sentiment. In such a situation, it cannot be ruled out that at the October meeting the regulator will once again “cosmetically” raise the base rate from 7.5% to 7.75%. It is less likely that the Central Bank will leave the rate unchanged. At the same time, volatility on the market decreased in the last month, and the observed inflation and expected inflation stabilized after a sharp rise in May-June.”

“We are waiting for the increase of the key rate by 25 basic points” – says Ilya Ilyin, an analyst at Promsvyazbank

“The key rate of the Central Bank can be increased under current conditions only to avoid capital outflow in the United States, where a campaign of tightening monetary policy is actively developing. The yields on securities and currencies of a number of other countries look more impressive than in Russia. Investments in business projects in individual states of not only the second world, but also the third world are more profitable than in the Russian Federation, and have more adequate balance of income and risks and lack of regulation. There is a possibility that it will motivate the supporters of the academically adjusted rate to increase the neutral level and even raise the benchmark for banks by 25 basis points. Nevertheless, in the absence of a consensus on a neutral rate in Russia, any academic calculations on this topic will be adjusted taking into account political factors that play an increasing role in the global and Russian economies. For this reason, I do not expect any changes in monetary policy in the modern context,” says Mikhail Krylov, Director of the Analytical Department at the Golden Hills-Capital AM Company.

Company: Cbonds Group

Full company nameCbonds Ltd
Country of riskRussia
IndustryInformation and High Technologies


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