“Sberbank CIB”: the Central Bank of Russia will lower its key interest rate to 10.5%

“Sberbank CIB”: the Central Bank of Russia will lower its key interest rate to 10.5%


Given the difficult state of the Russian economy there is a very strong likelihood that the Central Bank will ease monetary policy to support the real sector, analysts say.

MOSCOW, 28 Oct. The Bank of Russia will again take a course on easing of monetary policy and reduce its key interest rate by 50 basis points in December to 10.5 percent: the main argument — the difficult state of the Russian economy, the magnitude of the recession which is still great, there is a large supply to support the real sector through changes in monetary policy, analysts of “Sberbank CIB”.

A regular meeting of the Board of Directors of the Central Bank rate will be held on Friday, October 30.

In September, the Central Bank refrained from a rate cut mainly due to the uncertainty around the prospects of tighter policy by the fed and the pressure experienced by the ruble under the influence of unfavorable news from China, associated with the devaluation of the yuan and the collapse of the Chinese stock market, analysts remind.

In addition, important for the Bank of Russia is that the ruble weakening in the third quarter caused an acceleration of inflation. These external factors have largely lost their relevance since the last meeting of the Board of Directors of the Central Bank, analysts say.

“In recent weeks, global markets managed to avoid any significant corrections, but the recovery of interest for risky assets had a positive impact on emerging markets. Oil prices remained volatile, however, the price of Brent is now almost the same as that of 11 September — about 48 dollars per barrel,” pointing them.

For and against

“The main argument in favor of reducing the rate of the Central Bank — the difficult state of the Russian economy. Even considering the fact that in recent months there has been some improvement in the dynamics of the main macroeconomic indicators, the decline is still large. In conditions when the Central Bank rate remained double-digit, there is a large supply to support the real economy through changes in monetary policy,” — noted in “Sberbank CIB”.

The chief argument against rate cuts is still high inflation and inflation expectations. The annual CPI growth rate, which in June fell to 15.3%, and subsequently rose again and since then kept at 15.6-15.8 percent. The fact that in the third quarter, the inflation stopped slowing down, due mainly to a sharp weakening of the ruble under the influence of external factors.

Annual inflation on 1 April will be 8%

“Now, when the influence of these factors has weakened, we expect a slowdown in inflation. Analysis of monthly data on inflation for the period from November 2014 to February 2015 suggests the inevitability of a sharp disinflation. Because these measurements fall out of the CPI in the coming months, by the end of the first quarter of 2016, the pace of annual inflation should fall to about 8%” — gives his assessment of the experts.

“This development will actually mean a tightening of monetary policy because the rate of the Central Bank in real terms, which now has a negative value, rises visibly above the zero mark. Assuming that the Central Bank takes into account scenarios of development of events in the future, it is logical to assume that he will want to take action in advance”, — analysts say.