Summary:

  • Russian central bank decides to cut rates more than expected at its final meeting this year
  • Price growth and inflation expectations fall to a record low
  • Russian main index RTS (RUS50 on xStation5) hovers close to its highs, oil prices remain the prime driver

Russian central bank unexpectedly sped up the pace of monetary easing delivering the third 50bps interest rate cut this year while the market consensus had pointed to a 25bps cut to 8%. The move could be aimed at halting declines seen in price growth as well as inflation expectations as both fell to a record low.

link do file download linkRussia’s inflation slumped over the course of the past two years being at the lowest point on record. Source: Bloomberg

As you can see at the chart above Russian inflation slowed down to 2.5% yoy in November, however according to the rate setters it could have stemmed mainly from one-off factors such as a bumper harvest and the strong domestic currency. At the same time households’ inflation expectations for a year ahead dipped to 8.7% in the past month. The central bank has also vowed to bring inflation back to the 4% target as soon as next year.

What’s more a governor Nabiullina announced that the prime rate could decline to between 6% and 7% over the next one or two years once there are no external shocks anymore. She also added that the debt market ought to suffer only a short-term spike in yields if the US goes ahead with a proposal to impose sanctions on the country’s sovereign bonds. The decision has had a limited impact on the ruble thus far as it’s weakened just moderately against the US dollar and the single currency. Meanwhile, irrespective of the central bank decision quite an interesting technical set-up could be notice in the Russian main index (RUS50) which has been traded within a range of late.

link do file download linkRUS50 hovers close to its recent highs so once trading within a consolidation is to continue, it might push the price lower in the nearest future toward 1100 points. On top of that, let us spot that the index remains obviously strongly correlated to oil prices, hence should they see a pullback it might also be a drag on the Russian stock market. Source: xStation5