Analysts ruled out the reduction of the key rate of the Central Bank until the end of the year

The Board of Directors of the Bank of Russia at the meeting on Friday, October 28, will hold its key rate unchanged at 10% per annum, unanimously agree 21 interviewed the analyst. In their opinion, intrigue in the near future should not wait. Market participants became convinced that their expectations for the reduction of the key rate was too high.

In 2016, the Bank of Russia reduced the key rate twice. On 10 June, after six consecutive meetings of the regulator cut the key rate from 11% to 10.5% per annum. The Central Bank has taken such a step, noting that inflation has stabilized and the economy has entered a stage of restorative growth, mentioned in the comments of the regulator. The second rate reduction by 0.5 percentage points this year happened at the last meeting on September 16. The Bank of Russia has given for the first time unexpectedly harsh comment: “it is necessary to maintain the achieved level of key rates until late 2016,” in order to stabilize the dynamics of price growth.

Interviewed analysts from the meeting of the Central Bank’s key rate to this Friday surprise waiting. They were convinced that their expectations of monetary policy easing was excessive — the rate will be maintained at current levels at least until the end of the year. To back up their arguments, the regulator can low decrease in annual inflation since the last meeting. “In fact, in annual terms inflation from mid-September fell not so much from 6.5–6.6 per cent to around 6.2–6.3 per cent,” says the Manager of research and Analytics PSB Alexander Polyutov. According to him, inflationary risks could carry and an excessively strong ruble on the background of increased demand for ruble liquidity due to privatization deals and a rebound of oil above 50$/bbl.

The main attention of experts is paid to the review of the Central Bank following the meeting. “Once it was stated that the reduction should not wait that need further clarification” — said the chief economist at Alfa Bank Natalia Orlova. She expects that in the comments of the Bank of Russia may relate to retail consumption, nominal wages and credit. The signs of recovery in consumer demand and the growth of retail lending, Central Bank head Elvira Nabiullina said in mid-October. At the same time, Rosstat at the end of September recorded a growth of nominal wages in annual terms by 9.4% to 36.1 thousand RUB (in real terms they have risen by 2.8%). The preservation of the key rate on 28 October, the Bank of Russia may reinforce these factors that affect the acceleration of inflation, suggests Orlov.

According to the chief of analytical Department of Bank “Zenith” Vladimir Evstifeeva, the rhetoric of the commentary on the results of Friday’s meeting, the Central Bank is neutral. “It will not cancel the previous postulate that the question of further reduction of the key rate will be considered only in the first quarter of 2017. It may be said that since the last meeting, a marked improvement in the economy has not happened,” he said.

In the comments of the Central Bank will contain two messages, the analyst of Raiffeisenbank Stanislav Murashov. “The Bank of Russia may announce that inflation expectations declined, but the nature of their dynamics remains fragile, so the Central Bank rate and does not decrease” — he admits. The second thesis of the regulator, supporting the preservation of the rate of 10%, there may be a link to market participants, amerusa their expectations for the further lowering of the key rate, says Murashov. According to analysts Sberbank CIB, the market has already understood the hint CB that his expectations for a rapid decrease in the rate was excessive.

The Bank of Russia in a commentary on October 28 will try to shape market expectations for the key rate and on a more long term — for six months or a year, does not exclude senior analyst, group research and forecasting ACRES Dmitry Kulikov. “Perhaps, in a more specific form will be mentioned the impact of fiscal policy on monetary-the uncertainty in connection with the preparation of the budget is gradually decreasing”, — he said.

To soften the rhetoric of the review, the Bank of Russia, most likely, would not, according to the main analyst of the Bank Natalia Vasilyuk. Among the inflationary risks the Bank of Russia may, as before, to mark the easing of monetary policy due to liquidity inflows and inertial inflationary expectations, she says.

The vast majority of analysts (20 of 21) surveyed , believe that following the meeting on 16 December the key rate will also remain at the level of 10% — otherwise, the Bank would risk the achievement of the targets for annual inflation of 4% by the end of 2017. At the end of September, the annual inflation rate was 6.4%, in August of 6.9%. The reduction of the key rate at the December meeting is only possible if inflation falls to the end of the year, at least up to 5.7%, said chief analyst of Nordea Bank Olga Lapshina. In this case, the key rate could fall up to 9.5 per cent, she admits.

But most analysts believe that the Central Bank, as promised, will lower its key rate only in 2017. The main factor due to which the Bank of Russia will leave the rate at 10% in December, will be the fed policy meeting on 14 December, which can be increased the Federal funds rate, says the chief economist of the Eurasian development Bank Yaroslav Lissovolik. “The Central Bank may take a wait and see attitude even in the beginning of 2017 to assess the impact the fed’s decision on rate world markets. With their strong volatility it is possible to further postponement of the reduction of the key rate for the second quarter,” he predicted. According to Poluchova of PSB, large payments on external debt together with the pressure factor, the fed can weaken the exchange rate of the ruble to the dollar in December to 67 to 69 rubles/$ (now around 62 rubles/$). The Brent oil price again fall below$50/barrel. if the OPEC countries at the meeting on 30 November will not be able to agree on limiting production, he says.