11 Feb 2015
CBR could cut rates until the 10% level – TDS
FXStreet (Edinburgh) - Strategists at TD Securities believe the Central Bank of Russia could extend its easing cycle until the refi rate hits 10%.
Key Quotes
“Our bearish opinion on Russia has been broadly confirmed. The government has enough resources to repay external debt coming due over 12-18 months, however the market attitude could sour in 2016 when reserves fall below $200bn, which remains the long-term risk”.
“The CBRs recent decision to cut took everyone we spoke with by surprise, and while most thought CBR credibility was partly damaged, most also thought this represents a change in tack for policy. The local consensus is now for sustained, gradual easing to around a 10% level this year, in keeping with the expected moderation in inflation and a de facto targeting of real rates”.
“We remain concerned that this is a very risky gamble on the part of the CBR and increases the skew of risks towards significant RUB depreciation even if, for now, it remains on track for gradual appreciation”.
Key Quotes
“Our bearish opinion on Russia has been broadly confirmed. The government has enough resources to repay external debt coming due over 12-18 months, however the market attitude could sour in 2016 when reserves fall below $200bn, which remains the long-term risk”.
“The CBRs recent decision to cut took everyone we spoke with by surprise, and while most thought CBR credibility was partly damaged, most also thought this represents a change in tack for policy. The local consensus is now for sustained, gradual easing to around a 10% level this year, in keeping with the expected moderation in inflation and a de facto targeting of real rates”.
“We remain concerned that this is a very risky gamble on the part of the CBR and increases the skew of risks towards significant RUB depreciation even if, for now, it remains on track for gradual appreciation”.