Tatiana Evdokimova, Research Analyst at Nordea Markets, suggests that the external environment and market sentiment towards Russia have improved considerably since the previous meeting of the Central Bank of Russia (CBR) on 14 September.
Key Quotes
“In these calmer conditions on the financial markets the CBR key rate decision on 26 October is much more dependent on the inflation outlook. Since the previous CBR meeting, inflation has picked up from 3.1% y/y to 3.4% y/y, which is in line with the CBR forecast for the end of this year (3.8-4.2%). What is potentially more worrisome is an upward trend in inflation expectations. They surpassed 10% in September, returning to the level seen at the end of 2017. Inflation expectations are likely to increase further in the coming months as several factors will have an impact on prices simultaneously.”
“An earlier rate hike is possible if the sanctions topic reemerges, increasing market volatility, or if inflation expectations rise noticeably already in 2018. The market in fact expects a hike over the same time horizon.”
“The upcoming meeting is a non-core meeting in the sense that it won’t be accompanied by the press conference of the governor or by the forecast update. The press release will likely remain cautious, signalling multiple inflationary factors and still high geopolitical risks.”
“The December meeting will potentially be more interesting as it will take place after the second round of the Skripal sanctions package comes into force and the market will be expecting more clarity about the timing of when the CBR will resume its regular FX purchases.”