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Inflation: raising interest rates was never the right medicine 
FxWirePro: Daily Commodity Tracker - 21st March, 2022 
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The RBA has kept interest rates on hold. Here's why it'll be cautious from here on 
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Sure, the RBA froze interest rates on Tuesday, but there's plenty of pain to come 
Russia's central bank kept its key rate unchanged today (11 September) at 11.0% as we and consensus expected. The main reasons given by the central bank to hold rates were 'higher inflation risks amid persistent risks of considerable economy cooling' as inflation climbs up 0.2pp to 15.8% y/y in August and Q2 15 GDP falls 4.6% y/y. Yet, the CBR reiterated its CPI forecast for June 2016, stating that annual inflation will fall under 7% and reach the 4% target in 2017.
"We see the latest statement as cautiously dovish despite unchanged rates as RUB's outlook and Russia's economic prospects still look weak on external factors such as falling oil and increased global volatility related to Chinese woes. Yet, trying to cautiously justify its 'on hold' decision, the CBR has not given this time clear enough anchors for the markets to follow. We conclude that the CBR is leaving an open question: are inflation expectations more important in the CBR's decision making than economic cooling? This is an obvious change from their previous communications which enhanced the importance of economic risks, with less emphasis on inflation. However, we believe that political pressure on the CBR to cut rates may increase as the Russian economy continues to fall lower, and the central bank's attention will be drawn away from inflation expectations", say Danske Bank.
Today after the announcement of the CBR's rate decision, the central bank's governor Elvira Nabiullina for the first time held a one hour press conference followed by the Q&A session. Despite the fact that Nabiullina talked about surging volatility in the global financial and commodity markets, we conclude from her speech that the CBR is not too frightened by an increase in global volatility. The CBR is ready to renew monetary easing taking a more cautious stand though as 'volatility in commodity prices will be elevated in the coming years'. According to Nabiullina 'oil prices in the years to come will linger at about USD50 per barrel'. The CBR estimates that the August depreciation of the rouble will contribute about 2pp to the annual inflation in December, pushing the CPI to 12-13% by the year end. Yet, if realised, we see these levels as fair enough to continue monetary easing, and we expect the key rate to fall 100bp to 10% by the end of 2015.
Talking about Russia's capital account, the governor stated that 'the nature of capital outflow is changing', and that 'as a result, oil prices have become more instrumental in affecting the dynamics of the currency exchange rate, while the impact of factors related to the capital account declined'. We fully share this view as according to our observations RUB fluctuations have become an oil story mostly, significantly less geopolitical. In January-August 2015 the capital outflow dropped to USD52bn versus USD77bn a year earlier.
"Overall, we emphasize the CBR's significantly improved consistency in decision making while realizing the true risks to Russia's economy", added Danske Bank.
