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GS See CBR Being Careful With How Far it Cuts Going Forward

RUSSIA
  • On yesterday's Russian rate decision, Goldman Sachs writes that they think the policy move was less about the exchange rate as it was a response to improving domestic conditions. Inflation momentum has slowed as indicated by both the April print and the weekly prints with the Ruble continuing to provide significant FX pass-through protection.
  • While the authorities would likely prefer a weaker Ruble given that it would benefit the budget, with the capital account still fairly closed and foreigners on the sidelines, the currency is unlikely to be very rate-sensitive. Instead, they think that lower rates are still aimed at supporting demand.
  • They think the CBR will be careful how far it cuts without first having a better view on the hit to potential. The margin of error to the supply is naturally wide, and GS believe that cutting too quickly could result in inflationary pressures as fiscal space outstrips potential.
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