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ATON - Daily Dashboard, Economics - Feb 12, 2013.


CBR Caught Between Conflicting Policy Objectives

The CBR will hold a scheduled policy meeting today (12 Feb), as a result of which we expect the regulator to hold the refinancing rate at 8.25% (minimum auction repo rate 5.5%; maximum deposit rate 4.5%) although the risks of price instability and an economic slowdown in Russia have both intensified.

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Inflation accelerated to 7.1% YoY at the end of January, exceeding the CBR's target of 5-6%. The situation is worsened because non-monetary factors, such as food inflation and regulated tariff revisions, were the major contributors to these pricing dynamics. At the same time, economic growth indicators point to deceleration: GDP added just 2.1% YoY in 4Q12, according to the preliminary estimate by Rosstat, and indications of a pick-up in industrial production in Jan 2013 are likely attributable to the calendar effect.

Our view is that the risk of an economic slowdown outweig hs the surge in inflation but we believe the CBR will refrain from immediately easing monetary policy for several reasons. First, the efficiency of any monetary easing may be limited given that Russia's economy is currently operating close to its long-term potential, on our estimates. Second, the CBR may find it more convenient to lower interest rates when inflation figures come down slightly, which we expect to happen by mid-year as the impact of last year's low-base effect wears out.


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Publication:Russian Banks and Brokers Reports
Geographic Code:4EXRU
Date:Feb 12, 2013
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