CBR to review its key rates in December meeting

After the Bank of Russia Board of Directors decided to maintain the key rate at 11% in September, the CBR remained in wait-and-see mode. A still volatile rouble and the corresponding high inflation risks weigh on the CBR. The latest weekly data were disappointing and showed slightly accelerated monthly inflation, which picked up from 0.6% in September to ~0.8% in October, notes Nordea Bank. 

However, because of the high base effect, inflation will likely contract from the current 15.8% to ~13% y-o-y by the end of the year and perhaps even move lower. The CBR said that «as inflation slows down in line with the forecast, the Bank of Russia will continue with a downward revision of its key rate, at one of its forthcoming Board of Directors meetings». The CBR will have plenty of opportunities to ease its policy in the coming months. Moreover, the risk of the economy cooling considerably is high.

The CBR acknowledges that the economy needs stimulus despite the fact that September saw a somewhat slower economic downturn, evidenced by key macroeconomic indicators. Still weak investment and consumer activity will remain a drag on the economy according to the CBR. Net exports will be the only positive contributor to annual output growth. Currency and money markets didn't react strongly to the decision. 

"Money market rates will also remain stable with 3-month rates likely to continue to hover below 12% with potential to move close to 11.5% by the end of the year. The next meeting of the Bank of Russia Board of Directors with a review of its key rate on the agenda is scheduled for 11 December 2015", says Nordea Bank.