Free Trial

CBR PREVIEW: CPI Spike May delay CBR 25bp Cut to 1Q21

CBR

CBR PREVIEW 18/12/20 - 1030GMT / 0530ET

  • POV: CPI Spike May delay CBR 25bp cut to 1Q21; Caution Prevails until CPI Moderates
  • CBR is expected to keep rates unchanged at 4.25% following a short-term spike in inflation - forcing institutions to pare back November's cut and dry expectations for 25bps of easing at this meeting. Conditions since then have changed dramatically, and by the CBR's previous criteria for a 25bps cut (RUB appreciation & reduction in geopolitical risks), we should be seeing a cut Friday.
  • However, a pronounced headline CPI overshoot in November (+4.4% YoY) on accelerated food inflation, robust loan growth & base effects outpaced the CBR's +3.7%-4.2% YoY end-year forecast by some margin - leading to reduced policy space at this meeting. Headline should peak at 4.9% YoY in Feb once the food supply shock and base effects subside, followed by a 2H21 moderation to 3.0% on expectations for a sustained output & consumption gap.
  • Since end-Nov, the RUB has appreciated ~4% vs the USD on firmer oil prices and broadly accommodative global risk sentiment - which will be looked upon favourably by the CBR, but may not be enough to tip the scales towards a cut.
  • Recent CBR comms point to a mixed to slightly hawkish tilt following months of dovishness. Nabiullina offset IMF pressure to cut below 4%, highlighting limited easing space, a "material" rise in CPI and poorly anchored expectations. Markets see 25bp of cuts still in the pipeline with Mosprime-3x6 RUB FRA spreads at 17.5bp (narrowed 7.5bp Dec 10) - but timing remains the primary concern.
  • Hence, our base case is for a 25bp cut to be delayed until Feb/March, but cannot discount chances of a cut at this meeting. 4.00 is seen as the near-term floor to rates with vaccines expected to bolster 2H21 activity - offsetting the need for a deeper terminal rate (~3.5% as some expect) and augmenting CBR flexibility to future shocks
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.