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MNI CBR Preview - March 2024: Inflationary Risks Justify Hawkish Policy Stance

Executive summary:

  • The Central Bank of Russia are unanimously expected to stand pat on rates at 16% given persistent inflationary concerns.
  • Economic activity data points to robust domestic demand, while the labour market remains tight. Moreover, expectations of looser fiscal policy will further justify the Bank’s ‘higher-for-longer’ stance.
  • Among sell-side, consensus is that the rate cutting cycle will likely begin in H2-2024.

See the full MNI Preview, with a summary of sell-side analyst views, here:

MNICBRPrevMar24.pdf

In February, headline inflation rose +7.69% Y/Y compared to +7.44% the month prior. Nevertheless, the Bank stated last month that the balance of inflationary risks are still skewed to the upside given persistently high inflation expectations, a higher upward deviation of the Russian economy from a balanced growth path, as well as a fiscal policy normalisation path. Nevertheless, the CBR expect annual inflation to decline to 4.0–4.5% in 2024 and to stabilise close to 4% further on, assuming tight monetary conditions are maintained for a prolonged period.

Additionally, economic activity data continues to surprise to the upside – real wage (+8.5% Y/Y) and industrial production (+4.6% Y/Y) data for February both display the robustness of domestic demand, while the unemployment rate (2.9%) sits at record lows, highlighting the tightness of the labour market.

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