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On Friday, the Central Bank of Russia (CBR) will have its monetary policy meeting. Analysts at MUFG Banks believe it will raise the key rate by 25bp to 4.75%. They point out the new trajectory of the rate policy will be key.  

Key Quotes:

“We (and consensus) believe that it will raise rates by 25bp to 4.75%, with upside risks of 50bp firmly on the table. In its March meeting, the CBR hiked rates by 25bp and signalled that the increase was a first step towards normalising rates in the medium term.”

“The medium-term macroeconomic forecasts will be updated and here we look for any revisions to the 3.7-4.2% year-end inflation forecasts. Moreover, and in a first, the CBR will publish its trajectory of the policy rate. According to Governor Nabiullina’s rhetoric, this rate path will neither be a dot plot akin to the FOMC’s forecasts, nor will it be a pure model outlook analogous of the SARB’s.”

“Our base case is that the CBR’s reaction function to higher inflation as well as a weaker external environment will mean a continuation of rate hikes at each meeting by 25bp for the next three meetings to 5.25% by July 2021 and thereafter pause as inflation begins to recede.”