Goldman Sachs have forecast a decline in the Central Bank rate to 5.5% in 2017


Goldman Sachs analysts presented one of the most radical forecasts on the key rate of the Bank of Russia, according to Bloomberg. According to their estimates, at the regular meeting of the regulator on 16 September the rate will be lowered from 10.5% to 50 b.p. and over the next four quarters by another 450 b.p.

On the eve of the meeting, the yield spread of bonds of a Federal loan to the rate peaked in April of last year — the peak of the final cycle of easing monetary policy. As of September 7, the yield of OFZ maturing in 2027 was of 8.01% with the key rate at 10.5%.

According to Bloomberg, 13 of the 16 interviewed Agency analysts predict that the meeting will be lowered the key rate by 50 b.p. up to 10%, the current level of bond yields shows that the rate should be closer to 8%.

“The difference between reality and market pricing indicates a growing confidence that the regulator will eventually approach the expected rate of inflation, which slowed to a two-year low, allowing you to run an additional economic incentives,” — said the Agency.

According to estimates by Goldman Sachs analysts Clemens Grafe and Andrew Matheny, who leads Bloomberg, the meeting rate will be lowered to 10% due to the slowdown in inflation in August and the decline in inflation expectations. At the Central Bank, they explain, it is possible to significantly lower the rate, but the regulator has repeatedly shown that he prefers to act sverhkategorijnoj, now he came to a turning point.

Traders in the bond market agrees, the Agency said: OFZ yields have fallen to levels that preceded the annexation of Crimea and the collapse of the ruble in 2014. The result OFZ bonds since the beginning of 2016 brought income to investors about 25%, which was the third best performance among emerging markets after the government bonds of Brazil and South Africa.

The spread to OFZ yield rate directly reflects market expectations in regard to how to change reality”, — said the chief economist of “Renaissance Capital” Oleg Kuzmin. According to him, the spread reflects the significant progress made, the Central Bank due to the chosen controller policy, and suggests that investors implicitly trust her. “They believe that inflation in Russia is really greatly reduced, allowing the Central Bank to lower rates,” he said .

“Renaissance Capital also expects a rate cut at the meeting on 16 September to 10%, and its further gradual decrease to 8% by the end of 2017. Speaking about the prospects of changes in the yield of OFZ, Kuzmin notes that there is potential for further declines, but expects that this potential will soon be limited. “Next year is expected to a substantial increase in borrowing from the Treasury over 1 trillion, several times more than this year — and this increased supply reduces the potential for further reduction of profitability”, — he concluded.

Orthodox policy

At each meeting at the rate in 2016, with the exception of the June 10 meeting, the inflationary pressure of oil prices on the ruble forced the head of the Central Bank Elvira Nabiullina to refrain from easing monetary policy. Fidelity inflation targeting brought her fame as the most Orthodox of the head of the Central Bank.

The measures taken by the Central Bank, have led to a weakening of inflationary pressure: the controller predicts a further slowdown in consumer prices in the medium-term objective of 4%. Goldman Sachs expects a decline of inflation by the end of 2016, below the mark of 5.5%.

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