By Zero Hedge
As the US scrambles to hike rates with the Fed woefully behind the inflation curve, and losing what little “credibility” with every passing day, Russia is moving in the opposite direction.
On Friday, the Central Bank of Russia cut its repo rate by 150bp to 9.50%, more than consensus expectations (10%). Today’s cut now fully reverts the emergency rate hike of 1050bp on 28 February in response to financial market turmoil and capital flight following Russia’s invasion of Ukraine. In other words, Russian monetary policy is now back to pre-Ukraine war levels.
Commenting on the CBR’s move, Goldman writes that the Bank acknowledges that the hit to inflation and economic activity was less than expected earlier and it provided updated inflation and key rate forecasts in the press release. Inflation momentum has fallen sharply recently, however, partially due to the appreciating Ruble and a slowdown and even a reversal in prices of goods that saw hoarding behavior immediately after the invasion. The Bank sees underlying inflation momentum in other categories still above the 4% inflation target.
And speaking of the ruble, not only has is it no “rubble” as Biden called it, but it is now the strongest it has been in years prior to the Ukraine invasion.
It gets better: while the Fed prepares to unleash multiple 50bps (or 75bps) rate hikes, in its press release, the CBR stated that it will consider the necessity of key rate reductions at its upcoming meetings, opening the door for further loosening. However, these will be more data-dependent and smaller in size.
The Bank now sees the average key rate for the remainder of the year at 8.5%-9.5%, translating into a potential 0-150bp of further cuts. However, fiscal policy developments were mentioned as the main inflation risks and that “further budget deficit expansion” may require tighter monetary policy.
Following the Russian rate cut, the RUB remained flat, reflecting that the RUB is not rate-sensitive in this environment and that FX is mostly driven by the capital account restrictions, exporter surrender requirements, fiscal rule suspension, and the Ruble for gas scheme (which implicitly manages the RUB but in a non-systematic way).
As Goldman notes, while some of these measures have been lifted, there is not yet an adjusted fiscal rule in place which would allow the CBR to systematically manage the exchange rate and allow it to have a better view on fiscal policy going forward. Until then, and with the hard currency flows continuing, we fail to see significant depreciation pressures.
Looking ahead, Goldman writes that further policy rate developments will be data-dependent, and will depend on policy decisions on the capital and current account that will influence the Ruble, as well as how fiscal policy shapes the relative dynamics of demand and supply.
I guess idiot Biden showed THEM, didn’t he?
Ive seen some propaganda videos where russians have well stocked shelves and decent gas prices. Without all the pregnant men plenty of baby formula. I expect they will have bumper crops as they have lots of extra fertilizer. Dont think they have as many food processing plants and chicken farms burning down.
Backinthe Backinthe Backinthe old USSR. Russian Federation just doesnt fit in the beatles tune.
The sanctions biden and the nato EU imposed on Russia have had far more detrimental effects on Western Europe and the USA. In addition to also pissing away over 56k billion with no expectation for repayment.
biden signed lend “lease” but with no provision for lease.
FJB
If we could have replaced Russian oil with our own and really hurt their economy but, of course, if we had been in that position, Putin would have never started idiot Biden’s war.
Precisely, Russia had convinced Western Europe to shutter their processes of producing energy in favor of thunberg energy. Then when the time was right he invades Ukraine and makes Western Europe even more dependent upon his oil and gas.
I remember something about a genius move by Putin.
biden had to be removed and set aside by an all powerful America first congress.
Those on the left that aren’t totally complicit are dutiful useful idiots for our adversaries. I really wish the world was such a place that we could get rid of all guns but for what we want for sport and pleasure, we could leave our doors unlocked, we could pay most of our attention to people’s feelings and we could leave our borders wide open and welcoming. The reality it, all that is totally stupid and self-destructive at this time.