Russia's central bank kept its key rate unchanged today (30 October) at 11.0%, while the split consensus expected a 50bp cut. The main reason given by the central bank for holding rates was 'persistent substantial inflation risks', as annual consumer prices grew at 15.6% y/y as of 26 October, and at 15.8% y/y in August 2015. While the CBR stated that the balance between inflation risks and the risks of the economy cooling remained unchanged,
"We see another U-turn in its actions, as the CBR is now clearly focusing on inflation again and becoming careless about the economy, which we estimate shrank 4.4% y/y in Q3 15, versus a contraction of 4.6% y/y in Q2",says Danske Bank.
Today's statement is again cautiously dovish, despite unchanged rates. The CBR signalled that as inflation slows down, it will continue the downward revision of its key rate. While in September 2015 the CBR did not give clear enough signs for the markets to follow, today's action shows inflation focus will prevail. However, the CBR pointed out in its latest statement that 'between September and October, annual inflation was slightly down', which is considered not in line with today's decision. The CBR's stand has become over cautious, posing substantial risks to an economic recovery in 2016 and 2016 GDP growth forecast of +0.5% y/y.
"We continue to see a 50bp rate cut on 11 December 2015, as we expect the CPI to slow further, falling to 12% y/y in December. However, the CBR may face a more challenging global environment in December than today, as we expect volatility in emerging market assets to increase globally on possible ECB QE and an approaching Fed hike", added Danske Bank.
