CBR preview: Adjusting to reality – Nordea Markets

Tatiana Evdokimova, analyst at Nordea Markets, suggests that the CBR is likely to revise its inflation forecast down and shift its rhetoric to a slightly more dovish mode.

Key Quotes                  

“Since the December meeting when the CBR last updated its forecasts, the EM currency index has increased by 2.6%, oil prices have recovered by 12%, Russian CDS has dropped by 21 points while 10-year sovereign bond yields have stabilised 0.26% points lower. The external environment has substantially improved thanks to a much softer Fed, continued trade negotiations and lack of progress in sanctions tightening.”

“Internal economic developments are also exceeding CBR’s baseline forecasts. Inflation response to the VAT hike remains moderate (with inflation at 5.2% y/y in February vs 5.5%-6% expected by the CBR for Q1). Inflation expectations seem to have peaked and are likely to gradually resume a downward movement in case of absence of new shocks. RUB appreciation (6.6% ytd, which is more than any other emerging currency) is also helping to keep inflation in check. Next week’s data about retail sales will be of particular importance to the CBR. January retail sales were weak (1.6% vs 2.9% in 2018) following the VAT hike. If this demand weakness persists for much longer, this will remain an important argument against further hikes.”

“Given that external conditions have significantly changed and the initial VAT impact on prices is weak, the CBR will likely revise its inflation forecast down and shift its rhetoric to a slightly more dovish mode. However, we don’t expect any promises to resume the easing cycle before Q4 given the generally cautious approach of the CBR.”

“While trade tensions remain unresolved, the CBR will probably keep a relatively cautious stance.”

“We believe that the key rate will remain stable at 7.75% for two more quarters with easing likely restarting in Q4. Several factors could potentially accelerate a resumption of the easing cycle. Sustainably better external conditions thanks to a trade deal or a faster-than-expected decline in inflation expectations are among them. The upcoming meeting will be followed by the press-conference of the governor.”

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Feed news

Latest Forex News

Editors’ Picks

EUR/USD trims Pound-related gains, back to 1.1150/60 price zone

The EUR/USD pair got a nice short-lived boost from Brexit optimism, although it quickly trimmed gains, as PM May failed to convince the markets. Failure near 1.1200 left doors opened for a retest of the yearly low at 1.1110.


GBP/USD nears 1.2700 as Brexit optimism fades

The GBP/USD pair keeps easing from daily highs and approaches the 1.2700 figure, down from 1.2814 as UK opposition wasn't convinced by PM May 'new' Brexit deal proposal.


USD/JPY stalls bounce near 110.60 post-mixed Japanese data

The tepid bounce in the USD/JPY pair appears to stall near 110.60 region following the releases of mixed Japanese trade and machinery orders data. However, the risk remains to the upside amid fresh US-China trade optimism and ahead of the key FOMC minutes. 


Gold struggles pull away from May lows, continues to trade near $1270

The XAU/USD pair closed the first day of the week virtually flat below the $1280 mark and came under a renewed pressure on Tuesday as the upbeat market sentiment didn't allow the precious metal to find demand as a safe-haven

Gold News

FOMC Minutes Preview: Inflation, inflation, where's the Fed's inflation?

The better than anticipated US first quarter GDP of 3.2% received its due in the May FOMC statement where “economic activity rose at a solid rate” in contrast to the March note where “activity has slowed from its solid rate in the fourth quarter.”

Read more