Today, the CBR cut the key rate by 150bp which exceeded consensus expectations (100bp), but fell short of the massive policy easing (200bp+) some had been advocating recently. Today’s press release from the CBR is largely identical to the one published after the 13 March 2015 meeting. The CBR is still trying to find a balance between weak economic activity, subsiding financial stability risks and high, albeit already falling, inflation expectations. The latter is still the key factor prohibiting the CBR from a more aggressive approach towards monetary policy easing.Like in March, the CBR pledges to continue monetary policy easing as inflation risks abate further. The mix of inflation risks remains much the same as in March, including potential pressures from tariff and budgetary decisions, salary indexation, and still-elevated inflation expectations. The CBR mentioned ‘Aggravation of external economic situation’ as the only new risk factor which, theoretically, could mean unfavourable oil price dynamics, lift-off in the US Fed rates and/or slowdown in China.“We acknowledge that the CBR is maintaining a conservatively dovish stance towards monetary policy. We note that little has really changed regarding the inflationary risk factors the CBR mentions, and thus the prospects for massive CBR easing going forward remain uncertain. Until there is more clarity on how the inflationary risks, such as tariff, budgetary and salary decisions, will play out, we are sticking to our forecast of 11% for the key rate by the end of 2015. Moreover, the CBR’s 450bp key rate cuts year-to-date might put the inflation slowdown at risk in late 2015 and/or early 2016.” said Societe Generale
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