The central bank of Russia kept its key rate unchanged at 7.25% on Friday. According to analysts to Danske Bank, expect the next cut to happen in 2019, while they point out that significant improvement in global macro sentiment could trigger a 25bp cut in Q4 18.
Key Quotes:
“The CBR kept its key rate at 7.25% on 27 July. The CBR continues to enhance 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 previously, as new factors of uncertainty arise.”
“While inflation has remained low, it is set to rise soon. Although pass-through effects from the RUB’s recent weakness have been insignificant, the increase in fuel prices and the government plan to hike VAT by 2pp to 20% in 2019 accelerated inflation expectations to their highest since October 2017.”
“The CBR sees pro-inflationary risks going up, arising from geopolitics, global monetary tightening, and, as it mentioned, upcoming fiscal decisions. However, the CBR’s estimate of risks linked to consumer and oil prices remains moderated, which we see as a small crumb of comfort in the statement for those of a dovish persuasion.”
“We expect the CBR to stay on hold at its next monetary policy decision meeting on 14 September, focusing again on the tone of the statement.”
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