Page 98 - RusRPTMar21

Monetary Fund (IMF) that earlier this week suggested that the CBR has room to cut 50bp off interest rates to boost growth in the coming months despite surging inflation.
Instead, as anticipated by domestic analysts, the regulator remained focused on inflationary risks, maintained the rate flat and has walked back its previous guidance on the horizon of the monetary easing cycle.
As reported by bne IntelliNews, inflation in Russia breached the 4% target of the central bank at 4.9% for 2020 and remained elevated at over 5% in January, prompting the government to put price caps on certain food categories.
In an accompanying statement the CBR indeed noted that disinflationary risks are no longer dominant over the 12-month horizon, while the inflation forecast for 2021 is revised upwards to 3.7%-4.2%. Food prices remained elevated in January, while global vaccination efforts and expectations of fiscal stimulus in some countries pushed the prices on the financial markets up, the CBR commented.
The analysts at Sovcombank noted on February 12 that the CBR maintains the key rate below the neutral range of 5-6%. Previously the CBR head Elvira Nabuillina guided that return to the neutral monetary policy is possible in 2022.
In the latest press-release, the CBR commented that it will still determine the dates and the pace of return to the neutral monetary policy. Sovcombank believes that should inflationary pressures persist, and the ruble be subject to another round of geopolitical pressure, the CBR could push the key rate to 5% already in 2020.
Previously Renaissance Capital analysts maintained the call on the earlier start of the CBR’s policy normalisation cycle in mid-2021. Sberbank CIB and Sova Capital analysts expected the next hike cycle to commence in mid-2022.
CBR Governor Elvira Nabiullina commented on the key rate decision
during a press conference on Friday, 12 February. The highlights from the press conference are as follows:
· Ms. Nabiullina stressed that although the rate-cutting cycle is over, it is too early to discuss rate hikes. The most recent IMF recommendations for an additional easing of 50bps were based on a more disinflationary scenario rather than what has materialized. CBR’s BoD has discussed the rates, as well as the speed and scope at, which monetary authorities could return to a neutral policy.
· Consumer inflation accelerated to 5.2% in January and could peak at 5.5% in mid-March. The contribution of FX pass-through is
98 RUSSIA Country Report March 2021 www.intellinews.com