Page 72 - RusRPTApr23

government spending is viewed as the key support for the consumer activity, which may increase imbalances between still low productivity and growing demand, hence contributing to price acceleration. However, despite still significant risks and thus hawkish tone of the regulator, the reality is still disinflationary amid subdued propensity to consume given relocation and high economic uncertainty. Government spending has also showed some signs of stabilisation.
CBR Sentiment index recovered to its pre-crisis level, no-change seems most likely. The results of our semantic analysis suggest that the regulator is likely to keep the interest rate at 7.5% this Friday. The model estimates point to 7.55% – slightly lower than our February figure – as a result of a deceleration in consumer prices in February. However, economic recovery and lower unemployment rate together with further strengthening in the regulator sentiments imply that at the upcoming meetings the CBR will decide between a rate hike and a no-change. So, we do not expect material changes in the tone of the regulator. The main message will likely remain that pro-inflationary risks are prevailing due to tight labour market, which widens the gap between growing wages amid high government spending and falling labour.
BCS expects the rate to remain at 7.5% in March, 50-100bps cut by end-2023. Despite the CBR’s hawkish rhetoric, the rate hike decision seems unlikely as private consumption remains under pressure despite some signs of recovery. As government seems to stabilize its spending pattern, consumers are unlikely to become the key contributors to inflation acceleration. However, elevated inflation (above the target in 2023) remains a function of supply factors, which are dependent on the cost of credit – this may become an incentive for the CBR to ease. Looking further ahead, we expect the CBR to pause with rate moves until mid-2023. Then, the CBR could deliver another 25bps cut depending on the inflation, labour market, and the effect of expansionary fiscal policy. We forecast the interest rate to be slashed to 6.5-7% this year.
72 RUSSIA Country Report Russia April 2023 www.intellinews.com