The consensus forecast: the Bank of Russia does not dare to lower the rate in a controversial situation

The consensus forecast: the Bank of Russia does not dare to lower the rate in a controversial situation

MOSCOW, October 29. /Corr. Alina Evstigneeva, Natalia Starostina/. The Bank of Russia second time in a row will keep its key rate unchanged at 11% per annum – is considered by most surveyed economists. The rate decision will be taken at a meeting of the Board of Directors of the Central Bank on Friday, 30 October, and published at 13.30.

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9 out of 15 analysts (from UniCredit Bank, Metallinvestbank, CYI Sberbank, UK “ronin trust”, Alfa-Bank, Nordea, Open Capital, pension Fund Capital and Gazprombank) believe that the regulator will leave the one-week REPO rate at 11%, other 6 experts (from Credit Suisse, Bank, Bank, Sberbank CIB, URALSIB capital and ING) are considered more likely a loss of 0.5 percentage points to 10.5%.

According to the consensus forecast, the Bank of Russia will keep its key rate at current level with only 60% probability. And although analysts believe the most likely preservation rate, almost all of them say that this time to predict the action of the regulator is not easy. “More or less equal probability will reduce or leave, the odds are 60-40 in favor of one that will leave”, – said the head of operations on the foreign exchange and money markets Metallinvestbank Sergey Romanchuk.

The situation is contradictory

After the Bank of Russia’s transition to inflation targeting formally to the regulator there is only one criterion for determining the level of rates is inflation. All steps of the CBR should aim to get inflation to 4% by the end of 2017.

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“The situation is ambiguous. Weekly inflation to 0.2% high even for October, and inflation expectations are too high. If the Bank of Russia adheres to a policy of inflation targeting, the rate will not change”, – said the head of the Center for macroeconomic research of Sberbank Julia tseplyaeva.

The main factors indicate the possibility of a rate cut, but the situation is pretty shaky. Since the previous meeting of the Board of Directors of the Central Bank rate decision (September 11), annual inflation dropped from 15.7% to 15.5 %, inflation expectations are rising for several consecutive months, trend inflation (with the cleaning of one-off factors) remains high at 11.9%. The ruble exchange rate to dollar for a month and a half has strengthened significantly: 68,5 rubles/$ to 63.5 rubles/$, but in the last days because the end of the tax period and sales of export revenue is still weakening again.

According to the main analyst UK “ronin trust” Andrew verholantseva, the decision to decrease rates in such volatility of the ruble may push down the national currency. Expectations of market participants is also contradictory: the spread of OFZs to the rate reaches 100 b.p., which indicates bearish sentiment, with 3-month MosPrime rate since September has not changed.

On the one hand, strengthened the ruble and stable inflation give the regulator the chance to reduce rates at least 0.25 percentage points, with another – have not gone away risks rate hike by the fed and the seasonal weakening of the ruble at the end of the year.

“There are two factors – oil and seasonality. Seasonality from year same year: in the summer it strengthening, then in the late summer – early autumn weakening, then in the middle of autumn the fortress, and at the end of the year is weakening. And so every year, always the same”, – explained the Deputy Finance Minister Alexei Moiseev.

The fed is the most important external risk along with the slowdown in the Chinese economy. According to the American regulator, published on Wednesday evening, the discount rate has increased the likelihood will be increased in mid-December.

“The decision of the Central Bank of the Russian Federation will depend on the application of the U.S. Federal reserve. Since the fed gave the signal for a possible rate increase to the end of the year, the Central Bank will probably wait a little with the softening of the OST” – suggests Verholancev.

According to him, if the fed commentary was more blurred, it would give the CBR more convincing trump card to lower rate.

The economy comes to life

The cycle of lowering the key rate in the first half of the year was dictated by the need to support economic growth. However, by the end of the year, risks of a cooling economy weakened, and Tuesday the economic development Ministry even reported quite positive results of September, when the GDP with clearing of the seasonal factor grew by 0.3%.

According to Romanchuk, these statistics also may be a signal for the CBR to postpone the resumption of the easing cycle of monetary policy.

In turn, Vladimir Pantyushin from Sberbank CIB believes the likely reduction of interest rate by 0.5 percentage points still to support economic growth.

“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 scale of the fall is still great,” he says.

The analyst calls and the technical argument in favor of a rate cut. According to him, in the 1st quarter of 2016 because of the base effect, annual inflation will slow sharply to 8%, and then the key rate from sharply negative (minus 4%) turns sharply positive (plus 3%).

“If we assume 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 measures in advance,” said Pantyushin.

Business traditionally expects from the regulator for a rate cut. Co-chair of the Committee “Business Russia” on monetary policy Vladimir Gamza considers reasonable its reduction by 0.5 percentage points, to “show the market that the financial authorities themselves believe in the existence of financial stabilization, as evidenced in the last time”.

According to him, businesses need rate even lower – at least at the level of the refinancing rate and the yield of Russian business – 8-9% per annum”.

As a signal to continue pause analysts took the recent speech by the first Deputy Chairman of the Central Bank Dmitry Tulin.

“Some time ago, it was Thulin’s performance in the state Duma that the ruble has strengthened quite convincingly, that consequently reduces pressure on inflation in the future – reminds Romanchuk. – Speech to the Duma somewhat changed the idea of what can make CB. They said that the flickering rate can bring only harm, which means that now the Central Bank may take a break to offset the decline rates in the past. The regulator made it clear that reorienting should be sustainable, should not hurry, to not have up and down”.

Analysts ‘ forecasts

The company Analyst ПрогнозCredit Easy Pogorelov,UniCredit Bangaram Arhipovna Silova,metalloinvesttransa Romanucci Sberbankiada Casevac “ronin trust”Andrey Verholantseva-banknote Orlovetz Zavialov,5Nordea 11Sberbank Swiader Pantushin,OTKRITIE Capitalcare Iscover Capitalise Deviatov,5PF Capitalising Надоршин11INGДмитрий Polevoy,Gazprombank Maxim Petronevich

The average value of the forecast is 10.8.