The consensus forecast: the CBR will have to make the hardest decision rate for the year

The consensus forecast: the CBR will have to make the hardest decision rate for the year

MOSCOW, December 10. /Corr. Alina Yevstigneyeva/. The Bank of Russia on the last in this year meeting on key rate will take the most difficult year for the decision, according to polled analysts, who mostly believe that the regulator will keep the rate at the current level of 11%. The reason of uncertainty of experts lies in reducing actual inflation with a simultaneous increase in inflation risks amid falling oil prices, sanctions against Turkey and other challenges.

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The rate decision will be taken at a meeting of the Board of Directors of the Central Bank on Friday, December 11, and published at 13:30 GMT. This will be followed by a briefing by the head of the Central Bank Elvira Nabiullina and the publication of the updated report on monetary policy.

5 of 16 economists (IFH “Capital”, Renaissance Capital, Sberbank CIB, Nordea and VTB Capital) believe that the regulator will reduce rate by 0.5 percentage points to 10.5% and thus return the economy to the situation to interest shock on 16 December last year. Then the CBR was forced to raise its key sharply from 10.5 to 17% per annum, which virtually stopped lending to the country. 11 experts (Credit Suisse Bank, Gazprombank, alpha Bank, IK “URALSIB capital”, the Bank, Promsvyazbank, UK “ronin trust”, Raiffeisenbank, UniCredit Bank and the Opening of the Capital) insist that sharply increased inflation and external risks will force the Central Bank to “play it safe” and keeping rates at the current level of 11%.

To please business

The Bank of Russia at the meeting on December 11 will look at how the situation has changed over the last six months since the last rate cut, in order to assess the exhaustion of the softening. “The Central Bank assesses the dynamics of inflation and inflation expectations are not for a short period, and with the recent decision to lower rates. Thus, this meeting is an assessment of what has happened since the beginning of August,” explains economist VTB capital of Alexander Isakov. During this time, annual inflation slowed from 15.8% to 15% (with trend inflation and inflation expectations are rising), the ruble weakened with 58,99 rubles/$ to 69.3 rubles/$, cleaned monthly GDP growth from July to November, unchanged (0.1 percent).

“A reduced rate of 10.5% would be the technical recognition of the progress achieved since the beginning of August. This would be the real rate (the difference between the current level of the key rate and inflation forecast for the next 12 months) to the level of 4-4,5%, without it the rate will increase to 4.5-5%, there will be an effective tightening of monetary policy. Reasons for these more stringent now a bit considering the dynamics of wages, weak demand and statistics retail sales,” says Isakov.

Based on the balance of risks now probably need to cut rates to support the economy. “The most serious argument in favor of easing monetary policy – the weakness of the economy. Despite the improvement in the dynamics of industrial production and investment in recent months, the consumer sector remains under pressure,” explains Mr Pantyushin from Sberbank CIB.

In favor of rate cuts and said the technical factor. “Now the rate reduction it would be logical: then, in the first quarter, when we will see inflation of 7%, the Central Bank will have drop rate is quite aggressive,” warns the head of the Bank Dmitry Zavyalov.

In turn an analyst on the debt and currency markets financial group “IFD Kapital” Vladimir Harchenko adds to the arguments in favor of rate cut by the significant drop of oil in rubles, which “hardly included in the plans of monetary authorities”. “So it may be a desire to slow down this process, and this can be done by reducing rates,” does not exclude it.

To some extent the Bank of Russia on 11 December will be held hostage to its own promises. In the release of the last meeting the regulator gave an unprecedented clear signal to lower rates: “with the slowdown of inflation in accordance with the forecast of the Bank of Russia will resume the reduction of the key rate on one of the next meetings of the Board of Directors.” As for the CBR, it is crucial to send clear signals and to manage expectations of the market, there is no doubt that this promise will be fulfilled, or Friday, or already on January 29. Experts believe that it is better on Friday. “In my opinion, better sooner than later,” advises chief analyst Nordea Bank Dmitry Savchenko.

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Klepach believes that the Central Bank before the end of the year will leave its key rate unchanged at 11% per annum

The business expects to cut rates. “Declining consumer demand, the contraction of exports and imports together with high interest rates stifle business. In my opinion, this thesis will convince the leadership of the Central Bank lowering key rates on 50 b symbolic.p.”, – calculates the member of Presidium “Business Russia” by Anna Nesterova.

The Turkish gambit

And yet for the Central Bank in the first place will always be the risk of inflation. “This is the hardest decision for the year, – said the economist VTB capital of Alexander Isakov. – On the one hand, we see a decrease in observed inflation, on the other hand there is a certain set of shocks that may increase inflation pressure”. Among such shocks – a ban on Turkish products (CB evaluates the contribution of the embargo in 0.2-0.4% to inflation), the change in the mode of import from Belarus, maintaining a fare of trucks, as well as the expected introduction of restrictions for import from Ukraine. Outside of risk adds recent OPEC decision on quotas, which has already provoked the fall in oil prices and the weakening of the ruble, as well as the expected interest rate increase by the fed in the middle of the month. “It turns out that inflation is down and risks are up,” says Isakov.

Analysts even predicting a rate reduction, noted that “the Turkish question” can become the factor that will tip the scales in favor of preservation of the rate. “Factor because of which our forecast, assuming a slowdown of inflation and reduction of interest rates, may not be justified, is the deterioration of trade relations with Turkey,” – said Pantyushin.

Another major risk to inflation may become a new wave of weakening of the ruble, triggered by the OPEC decision to increase quotas and passing on the background of the December peak of payments on external debts. “Considering the current situation with the ruble (again approaching the mark of 70), inflation risks rise” – says the Deputy Director of the center for macroeconomic forecasting and investment strategy of the Bank Natalia Shilova. Agree with her chief economist for Russia and CIS “Renaissance Capital” Oleg Kuzmin: “as the dollar is approaching the mark of 70 rubles, we have reduced confidence that the rate will be lowered”.

Other analysts, however, believe that the potential for a significant fall in the ruble is absent (chief economist IR “URALSIB capital” Aleksey Devyatov) and that the Bank of Russia is already with the oil shock copes. According to the main analyst UK “ronin trust” Andrew verholantseva of the last days of practice clamp rouble liquidity supports the ruble. “Amid the current fall in oil prices, the ruble could fall stronger, but it maintains a strict policy of the Central Bank. It is that on a weekly ruble-denominated REPO auctions, the banks ‘ demand for liquidity is met by about 50%. Banks from week to week the demand twice as much than really satisfies the Central Bank,” he explains.

Analysts ‘ forecasts
The company
Credit Suisse
Alexey Pogorelov
Natalia Shilova
Gulnara Hidersine
Alpha Bank
Natalia Orlova
IR “URALSIB capital”
Alexei Devyatov
Dmitry Zavyalov
Alexander Polyutov
IFH “Capital”
Vladimir Kharchenko
MC “ronin trust”
Andrey Verholantsev
Renaissance Capital
Oleg Kuzmin
Sberbank CIB
Vladimir Pantyushin
Maria Pomelnikova
Dmitry Savchenko
VTB Capital
Alexander Isakov
The Opening Of The Capital
Darya Isakova
UniCredit Bank
Anna Bogdyukevich
The average value of the forecast