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At today’s meeting, the Russian central bank (CBR) left its key rate unchanged at 7.50%. According to Vladimir Miklashevsky, Senior Economist, at Danske Bank, the CBR’s tone remains inclined towards hawkishness, seeing 2019 CPI above the 4% target. They believe that deteriorating external conditions could trigger a hike in December 2018.

Key Quotes:  

“The CBR kept its key rate at 7.50% on 26 October. It continues to reinforce its hawkish stance, which was taken in April 2018 after the new sanctions hit the RUB. Reading the CBR’s latest statement on the decision, we find the tone to be more hawkish than after the September 2018 meeting, as external uncertainty may hit domestic markets at any time.”

“The CBR remains positive on economic growth, seeing no risk from the current rates on the bank’s own projections on Russian GDP growth (1.2-1.7% in 2019 while we expect a 1.3% expansion).”

“The CBR sees pro-inflationary risks staying up, arising from geopolitics, global monetary tightening and EM outflows. However, the CBR’s estimate of risks linked to consumer and oil prices remains moderate, reiterated from the previous statements and justifying today’s no-hike decision.”

“The RUB’s immediate reaction to the expected decision was slightly negative, rebounding very quickly. We see an increased risk of a 25bp hike on 14 December 2018, if the US introduces new anti-Russia sanctions hitting the new government debt and/or the banking sector. Geopolitical factors are set to dominate the monetary policy agenda in the near future.”