07/02/2018 |

Prices below the goal


Inflation has reached the next low.
The price increase in January in annual terms slowed to 2.2% – this is another historical record. Such a low figure can add to the CBA determination when the rate decreases, analysts admit.

Inflation in January was 2.2% compared to January last year, Rosstat said on Wednesday. This is another historical minimum, which inflation updates almost every month since last summer. Thus, the growth in prices fell almost twice below the target of the Central Bank (4%).

Without surprises

Inflation of 2.2% is not new information for the Central Bank when deciding on a key rate (a regular meeting on this topic is scheduled for Friday), weekly data were also talking about this, said Kirill Tremasov, director of the analytical department of Loko-Invest. There is a “very real possibility” that such a slow rise in prices will allow the Central Bank to reduce the key rate faster – by 50 bp. instead of 25, believes economist VTB Capital for Russia and the CIS Alexander Isakov. But the basic forecast still implies a decrease of 0.25 percentage points, he stresses. Now the key rate is 7.75%.


There are two counter-arguments for lowering the rate, Isakov adds. First, volatility in the financial markets (at the beginning of the week, the stock markets of Europe and the US declined at a rate of almost 5% per day). In addition, the Central Bank has traditionally undertaken more resolute actions at the so-called core meetings of the board of directors, the analyst points out. The next main meeting, according to the schedule of the regulator, is scheduled for March 23 only.

The surprise for the Central Bank is not inflation, but the result of the OFZ auction, the demand for which was high on Wednesday, February 7, despite the volatility of the markets, Tremasov points out. Foreign investors are still interested in Russian debt, he points out: “One of the key factors of this attractiveness are record high real interest rates.” The real rate in Russia is now one of the highest in the world, and the Central Bank has “serious arguments” in order to more quickly reduce the key. In the reduction of the rate by 25 bp, according to Tremasov, “there is no doubt”, and the probability of a decrease by 50 bp. – 50/50.

Towards a neutral policy

Productive inflation in January was 0.7%, prices for non-food products increased faster by 2.6%. Services went up by 3.9%. Core inflation, when adjusted for the most volatile factors (for example, weather or administrative decisions), fell to 1.9% in annual terms.

The Central Bank will choose between 25 and 50 bp, writes in the survey chief economist of the bank ING for Russia and the CIS Dmitry Polevoy. The probability of choosing the first option, in his estimation, is 55%, the second – 45%.

The CB already cut the rate by 50 bpts. in December, and this was a surprise for the market. So far, the regulator has not taken such decisive steps for two consecutive sessions, so it will limit itself by 25 bp decrease. on Friday, believes the chief economist of “Renaissance Capital” in Russia, Oleg Kuzmin. However, in March, a decrease of 50 points is possible, he adds. The consensus forecast of Bloomberg, in which 36 analysts participated, also provides for a rate cut of only up to 7.5% at the next meeting.

The central bank earlier announced a faster transition from a tight to neutral monetary policy. This transition may be faster, since “devaluation risks associated with external factors (weakening of the ruble due to oil prices – RBC) weakened, so we do not exclude that we will move on, we will move to a neutral monetary policy a little faster, than expected earlier, “noted the head of the regulator Elvira Nabiullina last week. The level of the neutral rate, according to her, is 6-7%.

Author: Anton Feinberg.

Original in Russian: RBC Daily

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