Most economists and portfolio managers surveyed (23 of 31), believe that the Board of Directors of the Bank of Russia following the meeting on 18 March will leave its key rate unchanged at 11% per annum. The Central Bank has set this rate on July 31, 2015 and on each of the last four meetings left her unchanged. In the price of bonds called for lowering rates by 100-150 basis points, chief economist for Russia and CIS at ING Commercial Banking Dmitry Polevoy. Therefore, the respondents economists believe that the decision of the Central Bank to leave rate unchanged, but to announce the easing of monetary policy in a press release, will lead to fluctuations in the currency market on Friday, March 18.
Due to the meeting of the Board of Directors of the Central Bank on Friday, March 18, in the foreign exchange market may be increased volatility, I think economists surveyed. The decision on the key rate has no direct impact on the dynamics of the ruble exchange rate, however market participants can respond to it emotionally. “On the one hand, market participants expect the key rate reduction (in prices of bonds are based on the expectation that market), and its level is equal to 11% per annum will have a positive impact on the ruble. On the other hand, saving a bet now, the Central Bank can accompany a press release more than soft rhetoric that will give hope to cut rates in the future and, accordingly, may weaken the ruble,” – says the analyst of IK “Veles Capital” Yuri Kravchenko.
The Bank of Russia in fact will play against the ruble, if you save a bet, but will release a “soft” press release, says Vice-President of the Bank “FC Opening” Alexander Mansir. In his opinion, the ruble may weaken. “Usually the rate reduction affects the exchange rate, however, the latest ECB meeting, when rates were lowered, and the Euro has responded with a short decline and very quickly compensated, they say that this is not always confirmed,” says Melendy, adding that the reaction can be unpredictable.
Hostage a communiqué
The risk of inflation is reduced, however, the Central Bank will not rush with interest rate cut, believes the leading analyst of group of analysis of the debt markets division of research and analysts PJSC “Promsvyazbank” Dmitry Gritskevich. In annual terms, inflation, according to Rosstat, declined in February to 8.1% from 9.8% in January. The latest weekly data (on 9 March) point to a further deceleration of inflation to 8% in annual terms, adds Gritskevich. However, from 1 April increased the excise tax on fuel; and the Central Bank, most likely, will postpone the rate reduction before will appreciate the contribution of this factor to inflation, the analyst said.
Inflationary expectations for the next 12 months also declined for the third month in a row. However, according to the Central Bank, and the level of inflation and inflation expectations still remain elevated, you should from a monthly survey by the Central Bank “as evidenced by trends”.
Inflation is gradually declining, but it is not clear how it will change the indicator in the medium term, says chief economist “PF the Capital” Evgenie Nadorshin. “Shrinking demand does not allow producers and sellers to take full account in the price of goods the problems they faced in recent time; with the stabilization of demand, prices may start to grow rapidly,” says the Nadorshin. Last year the recession in the economy inflation, says the economist, while last year the Central Bank policies cannot be called as a deterrent. “The regulator too quickly and the lower interest rates for most of the year was below inflation. Maintaining rates at the current level now can have a positive effect,” adds Nadorshin.
The Bank of Russia is now a hostage of his January commentary, says chief economist of “Alfa-Bank” Natalia Orlova. “The previous comment was very harsh. The Central Bank indicated a growing risk of inflation and potential rate hike at the next meeting”, – she reminds. The current situation in the markets and in the economy speaks in favour of a rate cut, but the January communiqué makes it impossible, I’m sure Orlov. “The Central Bank cannot reduce the rate as soon as said of her possible promotion. The regulator must act consistently and in accordance with those signals that it sends,” agrees Nadorshin. At the next meeting of the Central Bank can only change the rhetoric of the press release, he said.
Prerequisites for mitigation
Rate cut at the next meeting of the Board of Directors of the Central Bank is waiting for the smaller part of the respondents economists: eight of 31. Among them was chief economist VEB Andrei Klepach, who expects a rate cut by 0.25 percentage points In its opinion, there are three prerequisites: first, the decline in inflation is happening faster than expected; secondly, the increase in oil prices contributes to the strengthening of the ruble, which reduces the inflationary expectations of the population; thirdly, the yield on the market of ruble government bonds fell to single digits, returning to the level of the third quarter of 2014.
Chief economist of “URALSIB capital” Aleksey Devyatov sees another prerequisite for a rate cut, namely, the contraction of economic activity. In his opinion, the Central Bank may soften monetary policy to support the economy.
Your argument in favor of the rate cut brings the head of Department of investment consultation IK “ZERICH capital Management” Alexander Melendy: balance of payments in the first quarter looks good at the expense of lower imports, which positively vlue on the ruble.
Signal the end of the crisis
Serious reactions in the currency market to cut rates should not be expected, although on the day of announcement of the decision may be increased volatility, indicated in its response to the inquiry experts “Arbat the Capital” Alexander Orlov, Sergey Fundobny and Alexey Golubovich. “If the Central Bank will act more aggressively and will cut the rate by more than 100 b.p. (as expected, participants in the debt market), the situation is more interesting, since on the one hand the decrease in the interest rate plays against the currency, but with another – such a decision may be perceived as a signal the Central Bank that the proverbial “bottom” in the economy has abated and lead to the strengthening of the ruble,” they wrote.
Orlov, Fundobny and Golubovic expect that the rate cuts will cause short-term outflow of money from the speculators ‘ carry trade and the ruble weakened on 3-5, but at the current level of oil prices in April and will recover to 70 to 72 rubles per dollar.