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ROSBANK: The CBR expectedly left the key rate unchanged, FOMC meeting did not bring surprises

May 3, 2018
Key News: The CBR expectedly left the key rate unchanged (7.25%) on the meeting on 27 April, but sounded modestly hawkish. Actually, the regulator did not provide with guidance for the next couple of meetings, having shifted attention to potential key rate trajectory inside the neutral range (6.0-7.0%) – the terminal rate for 2018 was shifted closer to the upward range bound. Although we do not know the starting point for the shift, we suggest that 6.75% by the end of 4Q18 remains a credible scenario which could be changed only under essential revision of sanctions backdrop and external conjuncture (both conditions are critical for estimating the sovereign risk premium).

The CBR left the inflation outlook (3.0-4.0%) unchanged though acknowledged potential acceleration of inflation toward the target 4.0%. This condition enables us to keep potential policy easing in 2Q18 and in 2H18 in mind. Nonetheless, we could estimate fair chances for a policy rate move in June only after two inflation report from Rosstat – for April (4-7 May) and for May.

Global Markets: External background has significantly changed under the influence of the US statistics, which may push correction of the local assets after long weekend. The personal consumption expenditure index (PCE) reached targeted level 2% for the first time in six years, which allowed the dollar to move higher (92.7, +1.3% to Friday’s close) and supported the Treasury yields at heighted levels (UST’10 2.96%).

Yesterday, FOMC meeting did not bring surprises: the regulator left the rate unchanged and expressed confidence in restoring the price growth to the target level. SG analysts note that the Fed has likely downplayed inflation risks and did not raised much concern about inflation overshooting its 2.0% target in the medium term.

Despite rich calendar of the US statistics on Thursday and Friday, we see only the US labor market report to become the nearest trigger for the Treasuries and the dollar. NFP data will be published tomorrow: at the moment the consensus set up at 192k (SGe: 190k). After weak results in March (103k) disappointed print may lead to correction in short-term Fed funds rate expectations. In particular, at the moment the implied probability of rate hike in June is 76%.
Index Name — Key rate of CBR
Company — Bank of Russia
  • Full name
    Central Bank of Russian Federation
  • Registration country