CBR plans to withdraw capital adequacy ratio concessions

Hawkish views have intensified inside Russia, calling for the CBR to lean against probable pass-through on inflation that could intensify with the ruble rout.

At the moment, a pause is still expected on 11 September.

According to Societe Generale,

• Although CBR chairwoman Elvira Nabiullina recently reiterated the key objective of lowering inflation to 4.0% by the middle of 2017, she did not discuss the significance of the external shock or abandon her intention to replenish reserves to USD500bn.
   
• The only comment made in August was to reiterate CBR's strong view on external balances. Given that both the current account and FX cash market liquidity remain ample, and that the ruble's recent correction was driven to a small extent by massive capital outflows, the conventional carry-trade logic of the interest policy response in question as ineffective.
   
• The validity of a hawkish stance is also questionable in the light of current fiscal imbalances. The ruble's correction fair from a fiscal standpoint, but it reduces the power of conventional interest rate policy measures should the turmoil persist.
   
• Higher ruble volatility has yet again imperilled the banking sector's financial sustainability, given that the CBR plans to withdraw the capital adequacy ratio concessions introduced back in December 2014 as of 1 October 2015. The plan has been rewritten and the deadline extended to 1 January 2016, thus implying additional nonmonetary relief.