March 10, 2016 | Cbonds
|A sharp deceleration of inflation from 1.0% m/m in January to 0.6% m/m in February was a positive surprise. It now appears that the ruble depreciation in the second half of January added little inflationary pressure. Rosstat’s February release suggested that YTD inflation has been mainly driven by higher prices for food and services, suggesting the negative effect of sanctions against Turkey and the ban on flights to Egypt as prime cause. Therefore, it might be that the recent deceleration of price growth shows that this effect has already evaporated. After the 8.1% y/y inflation reported for February, we expect the March figure to go to 7.5% y/y. |
Despite the positive inflationary trend, we see the CBR as being restricted by its previous hawkish comment, released in January. Just over a month ago, the CBR was threatening the market with monetary tightening, as it signaling its worries about the increased threats to financial stability and concerns about inflationary risks. Cutting its policy rate immediately after such strong guidance would be confusing for the market and negative for the CBR’s ability to control expectations. We thus expect a significant easing of stance in its comments, but forecast that the policy rate will stay on hold.