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With the Russian central bank all but certain to hold fire at its interest rate decision on Friday, investors are instead watching closely for any hint from Governor Elvira Nabiullina that the inflation danger from a recent tax hike is over, paving the way for monetary easing.
Central bank officials have so far given scant guidance after two surprise rate hikes late last year interrupted nearly four years of monetary easing. But with a spike in inflation likely to be softer than expected and money pouring in to Russian bonds, many economists have switched their bets from another hike to a cut before the year is out.
“The central bank may hint at a shift to rate cuts this year,” said Irina Lebedeva, an economist at UralSib investment bank in Moscow. It may start lowering rates “in September, when it’s clear how the harvest is going and what the outlook is like for inflation.”
Inflation quickened to 5.2 percent in February, well below the 6 percent level the central bank warned consumer prices could reach by the beginning of the second quarter. A value-added tax increase that kicked in on Jan. 1 didn’t have as big an impact on consumer prices as expected because retailers took most of the blow without raising prices.
The inflation outlook also got a boost from an 8.5 percent surge in the ruble this year, the biggest rally in emerging-market currencies. Investors have used a lull in sanctions threats from Washington to scoop up ruble bonds, with a record-high sales volume recorded at weekly auctions this month.
What Bloomberg’s Economists Say
“Inflation has underwhelmed, but uncertainty remains high. Anyone expecting a hint of easing in the guidance may be disappointed. A long hold looks likely.”--Scott Johnson, Russia economist.
The risk of inflation peaking at 6 percent has subsided, Alexey Zabotkin, who heads the regulator’s monetary policy department, said earlier this month, adding that monetary easing may begin as soon as late 2019. But First Deputy Governor Ksenia Yudaeva said six days later that it’s “not obvious” whether last year’s hikes were enough to bring inflation back toward with the regulator’s 4 percent target.
All 39 of the economists polled in a Bloomberg survey expect the regulator to keep the benchmark rate at 7.75 percent on Friday.
“We’re watching out for the latest risk assessment and any signal that the next rate cut will shift to 2019 from 2020,” said Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki. “External factors have turned more favorable since the start of the year.”
--With assistance from Zoya Shilova.
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