MOSCOW: The Central Bank of Russia (CBR) is expected to keep the benchmark one-week repo rate at 8.5 percent throughout the end of this year. After cutting its benchmark one-week repo rate by 50 basis points to 10 percent in September 2016, the CBR has refrained from further monetary easing amid adverse internal and external developments. However, policymakers are expected to announce another 50 basis point reduction to its key rate in March and maintain cautious easing in the second half of the year. The Russian economy continues to emerge from the crisis brought on by low oil prices and Western sanctions that closed access to international capital markets in 2015. Indeed, incoming macro data has demonstrated positive dynamics, with growth in manufacturing and services activity at a multi-year high and real disposable income registering its first increase in over a year. Inflationary pressures also continue to decelerate, with the headline CPI print easing to 5 percent y/y in January down from 5.4 percent in the prior month.
Looking ahead, Russian GDP is set to return to growth this year underpinned by a recovery in consumer spending and business investment. Further improvements in real wages are expected to push retail sales higher after slumping in 2016, while lending conditions should become modestly more favourable as the CBR gradually loosens monetary policy. “Meanwhile, government authorities are also embarking on an ambitious three-year fiscal consolidation program to reduce policy uncertainty and reinforce the fiscal adjustment. We expect the CBR’s benchmark one-week repo rate to end-2017 at 8.5 percent,” Scotiabank commented in one of its recent research report.
