The rapid deceleration of headline inflation in Russia might have added certain optimism to the market; however, the underlying assumptions have not sufficiently changed to shift the monetary stance. The CBR is expected to focus more on monetary outlook in tomorrow’s meeting and in the next couple of meetings in order to be in line with a possible new underlying scenario for oil prices.
The Russian economy, since the January meeting, has not undergone any considerable change that might set off a negative response from the central bank. Consumer activity, which declined 7/3% y/y in January, is being weighed on by the brunt of the crisis because of the declining real wages that fell 6.1% y/y in January. By the end of February, headline inflation eased to 8.1% y/y, declining more than forecast. The core basket of goods did not react much to the FX pass-through risks.
Russia’s internal financial conditions continued to be blurred, but the central bank managed it well. The extensive depreciation of ruble did not interrupt a modest rebound in credit activity amongst corporates. Meanwhile, dollarization of private deposits continued to be fairly stable.
Overall, it is fairly clear that the Bank of Russia will maintain the key rate at 11%. However, the bank is expected to update underlying oil price assumptions that might be accompanied by detailed economic forecasts.
“The baseline assumption could be tweaked from $50/b to $35/b for the next three years, while the risky assumption might be cut from $35/b to $25/b”, says Societe Generale.
