Vladimir Osakovsky, at UniCredit Securities.
The Central Bank of Russia (CBR) decided to keep its interest rates unchanged during its policy meeting on Friday, the bank announced in its official press release.
Our view: We note that the overall statement was rather upbeat, as the CBR did not mentioned any adverse trends in the economy. Moreover, the bank said that the economy might be close to a “sustainable growth trajectory,” as unemployment has fallen to pre-crisis levels. The CBR also noted the potential for further acceleration of consumer demand, due to the future resumption of bank lending and a reduced propensity to save due to lower interest rates.
Among other positive trends, the bank mentioned the continued recovery of retail sales, rising real wages, and accelerating investment. Meanwhile, the CBR mentioned the lack of inflationary pressures in the economy, saying that the level of inflationary risks is unlikely to be a reason for changes in monetary policy over the next several months.
However, we note that the inflation outlook is likely to start deteriorating in coming months. For example, money supply growth accelerated considerably in 2010, with M2 growth rising to over 30% yoy in 2Q10. Given the continued recovery of retail sales and real wage growth, we think the potential for further slowing of inflation is already limited and prices are likely to start rising year-end. Moreover, prices could also get a boost from draught conditions in key food-producing regions of the country, which could push up food prices.
Conclusion: The decision to keep rates unchanged was in line with expectations, which should minimize any market impact. We believe the CBR is likely to keep rates unchanged over the next several months.
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