MNI CBR Preview - October 2023: Inflation Worries Justify Another Hike

Executive summary:

• The CBR are widely expected to continue its hiking cycle with a 100bp increase to the key rate, taking it to 14%.
• Such a move would bring the cumulative increase in the key rate to 650bps since July, though worrying dynamics in recent inflation data could mean this month’s expected hike is not the last.
• 9 of the 14 analysts in the Bloomberg survey see a 100bp increase (3 see no change, 1 a smaller 75bp increase) while 16 of the 18 surveyed by Vedomosti expect the increase in the key rate to be by at least by 100bps.

See the full preview, including a summary of sell-side analyst views, here:

MNICBRPrevOct23.pdf

In September, the CBR followed the 350bp emergency rate hike in August with another 100bp increase. The meeting statement was slightly more hawkish than the August edition, pointing to concerns over the pass-through of price pressure from a weaker RUB. Furthermore, the central bank acknowledged that rates must remain high for a prolonged period of time in order to achieve the 4% inflation rate target by the end of next year – a view which has since been reiterated by central bank officials and reduces the odds of an early reversal in policy stance.

Since then, headline inflation has risen from 5.15% y/y in August to 6.00% y/y in September, beating expectations of a smaller increase to 5.90% and widening the divergence from the 4% target. However, inflation expectations in October fell slightly to 11.2% from 11.7%, as per the central bank’s latest report. Meanwhile, USDRUB on the MICEX exchange is now ~3.7% lower compared to pre-September meeting levels, reflecting both the stronger-than-expected current account balance in Q3 as well as the reintroduction of capital controls measures on exporters – who have been forced to sell hard currency earnings on the domestic market.