Tellimer

Russia’s monetary policy case – hawkish and surprising

  • CBR signals the end of its policy rate cut cycle
  • Current spike in inflation seems to be the main trigger of the CBR decision
  • Smaller than expected negative output gap does not look a convincing explanation for the hawkish CBR view
Russia’s monetary policy case – hawkish and surprising

CBR signals the end of its policy rate cut cycle: On 12 February, the CBR kept its key policy rate unchanged at 4.25%, however it has announced an end to its rate cut cycle and indicated it will now consider the timeline and pace of return to neutral monetary policy, i.e. bringing the policy rate to the neutral nominal range of 5.0-6.0%. We see this decision being hawkish and surprising for several reasons.

First, this represents a very sharp change from the CBR’s previous rhetoric – in December, the CBR was still considering a rate cut option while now it is turning to hike mode; guiding for a pause would be a more appropriate option, especially given that de facto the CBR stayed in pause mode for the last seven months.

Second, the planned return to 5.5%, i.e. the mid-point of the neutral range corridor was announced less than one year since the key policy rate was reduced from this level - the CBR executed a 100 bp rate cut from 5.5% to 4.5% just in June 2020; the period of monetary easing was, thus, short and the new rhetoric is likely to fuel concern over the same bumpy return to the neutral rate.

The third point is that we would see a rate hike coming when a number of growth-supporting initiatives – like subsidized mortgages and exemptions in banking regulations – are being withdrawn, not before this. All in all, regardless of the moment or the scale of further CBR action, we see its hawkish stance being a negative surprise for the growth outlook this year.


Most Viewed See all latest