Russia: CBR to keep the Key Rate on hold - TDS

In line with the unanimous consensus, analysts at TD Securities expect the CBR to keep the Key Rate on hold at 7.25% at today's Board meeting.

Key Quotes

“Recent inflation data has been benign with June headline and core CPI inflation both running at 2.3% Y/Y, comfortably below the 4% target. However, the CBR is concerned about the impact of the VAT hike, from 18% to 20% which will be introduced in January next year.”

“In particular they are worried about the impact on inflation expectations, which have indeed moved sharply higher to 9.8% Y/Y, and this will cause the CBR to maintain their cautious stance.”

“We think the CBR will ultimately be able to cut the Key Rate by a total of 50bps bringing it to a "neutral" level of 6.75%. It is hard to be precise about the timing of these cuts, but in our central scenario we expect the CBR to remain on hold until the end of the year, with then a chance of a 25bps cut at the December meeting and then another early next year.”

“A prerequisite for the cuts will be an improvement in inflation expectations.”