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MNI CBR Preview - October 2021: Larger Hike Seen Heading Off CPI Pressure​

The CBR are likely to opt for a larger rate hike of 50bps this month to face off a near-term inflation spike that's put price rises ahead of the bank's forecasts.

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Executive Summary:

  • The recent acceleration in inflation makes tightening a near certainty this month
  • Analysts are relatively evenly split in forecasting a 25 or 50bps rate rise
  • Even those that do see smaller 25bps hike also acknowledge the risk of a larger move.
Full piece here:

MNICBRPrevOct21.pdf

The CBR are likely to opt for a larger rate hike of 50bps this month to face off a near-term inflation spike that's put price rises ahead of the bank's forecasts. Analysts are relatively evenly split in forecasting a 25 or 50bps rate rise, but even those that do see smaller 25bps hike also acknowledge the risk of a larger move.

The recent acceleration in inflation makes tightening a near certainty this month, with both headline and core CPI continuing to trend higher across September. Headline and core printed at 7.4% & 7.6% y/y respectively - topping the CBR's forecast for a cyclical peak at 6.9%. Both a 25bps and a 50bps rate hike would likely meet the CBR's pledge to take more standard steps on the policy rate as the bank awaits a moderation of CPI into the second half of next year.

It's likely that the terminal rate for this tightening cycle will remain at around 7.50% regardless of whether the CBR choose to tighten by 25 or 50bps this month, with markets looking to gauge whether the board will front-load rate rises to head off inflation, or extend a sequence of 25bps rate rises over a few more meetings. A larger initial rate hike may address latent credibility concerns, as the Bank appear more responsive to the uptick in CPI.