Friday, June 10, 2016

Bank of Russia Cuts Rate First Time Since July as Risks Fade

Considering what she has had to work with, sanctions, oil prices etc., the central bank's performance has been as good as one could hope for.
From Bloomberg:
  • Economists were divided after rate pause lasted almost a year
  • Inflation surprised by remaining unchanged for three months
Russia’s central bank reduced borrowing costs for the first time in almost a year as its focus shifts away from risks to inflation after the ruble rallied and oil prices stabilized.

The one-week auction rate was cut to 10.5 percent from 11 percent, according to a statement on Friday. Twenty-two of 43 economists in a Bloomberg survey predicted a 50 basis-point decrease, with the rest seeing no change. Governor Elvira Nabiullina will hold a news conference at 3 p.m. in Moscow.

“The Bank of Russia will consider the possibility of a further rate cut based on estimates for inflation risks and the extent to which a decline in inflation aligns with the forecast trajectory,” the central bank said in the statement.

In one of the most debated decisions since Nabiullina took charge three years ago, the central bank is resuming an easing cycle thwarted since last July by the crash in oil and a new round of inflation pressure. The pivot comes before a parliamentary ballot in September, Vladimir Putin’s biggest electoral test since he returned to the presidency in 2012, which is raising the threat of spending increases that could again fan prices.

‘Everything Improved’
“Almost everything improved since the last meeting in April,” Dmitry Shagardin, an analyst at Bank Saint-Petersburg PJSC, said before the announcement. “Inflation failed to accelerate despite expectations, oil is stable at a high level in the past two months.”

Inflation risks including wage growth and uncertainty about fiscal policy mean the pace of easing should be “gradual,” the International Monetary Fund said last month. In contrast, the head of VTB Group, Russia’s second-largest lender, has called for a “decisive” single cut of 2 percentage points to give the market a “clear signal.”

The ruble extended losses after the announcement and traded 0.6 percent weaker at 64.6925 against the dollar as of 1:34 p.m. in Moscow. The Russian currency has gained almost 14 percent against the dollar this year, the second-biggest rally in emerging markets, after a 20 percent loss in 2015. Oil prices advanced 37 percent in the same period....MORE
Possibly also of interest:
What Changed In Russian Central Banking? "Turning the Russian petro-monetary transmission mechanism upside-down"

Russia Central Bank Prepares For Three Years of $35 Oil
"The Russian Central Bank Has Just Published its Assessment of the State of the Russian Economy"
Sentiment Towards Russian Investments Could Be Thawing, Despite International Sanctions