Russia: Looking at a 50bps hike in December with the key rate at 8% by year-end – TDS

The Central Bank of Russia (CBR) rose the key interest rate by 75bps on Friday, to 7.5% surprising market participants. Market consensus was for a 25bps hike. Analysts at TD Securities now forecast a 50bps rate hike in December. They consider an increase of 25bps or 75bps are equally likely.

Key Quotes: 

“The CBR signaled that more hikes are possible and, we think, likely. With one more meeting left in 2021 (17 Dec), the key decision will be whether the CBR can hike by 25bps, 50bps or more. The CBR also published today its medium-term macroeconomic forecasts that project the average key rate in the 7.5-7.7% range for the remainder of the year. The range widens to 7.3%-8.3% in 2022. A hold looks increasingly unlikely in December, so we will focus on tightening scenarios only.”

“We now forecast a further 50bps hike in December with the key rate at 8% by year-end. A hike of 25bps or 75bps are equally likely, but with lower probability than our baseline forecast. The key rate should further rise to 8.50% by March 2022, while easing can start in September to end 2022 at 7.50%.”

“The CBR has been one of the most hawkish central banks globally since March 2021. As a result, USDRUB trades over 8% lower since the start of 2021. Going forward, we continue to like RUB and Russian assets vs USD due to continued strong fundamentals. We also like RUB vs TRY due to diverging policy paths.”