9 Dec 2014
Uncertainty surrounds CBR’s rate hike expectations – TDS
FXStreet (Barcelona) - The TD Securities Team expects the MPC of the Russian Central Bank to hike rates by 150-200 bps, but note that there is a high uncertainty around this forecast as arguments can be made both for no hike, or a hike greater than forecasted.
Key Quotes
“This Thursday, 11 December, the MPC of the Russian Central Bank (CBR) will decide on its policy rate. We expect the key rate to be hiked by 150-200 bp from its current level of 9.5%. However, we think there is more than the usual degree of uncertainty surrounding this forecast, as arguments can be made for no rate hike, or a rate hike substantially greater than the one we expect.”
“The CBR has to cautiously move against a backdrop of political noise, rising inflation, falling oil prices and falling rouble. All this continues to feed one-direction capital outflows. Forward-implied and interbank rates suggest that the equilibrium point could be found substantially above the current 9.50% key rate. We think the CBR is willing to move this rate to double digits, but not to the extent that market rates would seem to imply.”
“On the other hand the CBR could decide not to hike rates on the grounds that rate hikes do little to address the underlying problems of lower oil prices and sanctions and in fact would impose a greater burden on an already weak economy. But the CBR probably realises that this could disappoint markets and force its hand more heavily in the following days.”
“To avoid a negative market reaction, but also to respond to the rising CPI inflation rate, we believe the CBR is likely to hike its key rate by 150-200bp on Dec 11. But there are large risks to this forecast in both directions.”
“The consensus for the hike in the key rate as given by the Bloomberg survey is 25 bps. However, the range of estimates is wide, running from 0 bps to 250 bps, reflecting the large uncertainty regarding this rate decision.”
Key Quotes
“This Thursday, 11 December, the MPC of the Russian Central Bank (CBR) will decide on its policy rate. We expect the key rate to be hiked by 150-200 bp from its current level of 9.5%. However, we think there is more than the usual degree of uncertainty surrounding this forecast, as arguments can be made for no rate hike, or a rate hike substantially greater than the one we expect.”
“The CBR has to cautiously move against a backdrop of political noise, rising inflation, falling oil prices and falling rouble. All this continues to feed one-direction capital outflows. Forward-implied and interbank rates suggest that the equilibrium point could be found substantially above the current 9.50% key rate. We think the CBR is willing to move this rate to double digits, but not to the extent that market rates would seem to imply.”
“On the other hand the CBR could decide not to hike rates on the grounds that rate hikes do little to address the underlying problems of lower oil prices and sanctions and in fact would impose a greater burden on an already weak economy. But the CBR probably realises that this could disappoint markets and force its hand more heavily in the following days.”
“To avoid a negative market reaction, but also to respond to the rising CPI inflation rate, we believe the CBR is likely to hike its key rate by 150-200bp on Dec 11. But there are large risks to this forecast in both directions.”
“The consensus for the hike in the key rate as given by the Bloomberg survey is 25 bps. However, the range of estimates is wide, running from 0 bps to 250 bps, reflecting the large uncertainty regarding this rate decision.”