Push down. What will happen to the ruble after lowering the key rate
An unexpected turn
The Central Bank’s decision came as a surprise to markets: a majority of investment banks, including BofA Merrill Lynch, Morgan Stanley, Sberbank CIB and Renaissance Capital, in their analysis warned to reduce the rate to 8% by the end of this year.
“In contrast, core inflation, inflation expectations and the volatility of prices remain for the Central Bank a serious problem. Inflation expectations declined in October by 9.9% to 8.7% in November, but Elvira Nabiullina, however, considers this level of “high,” wrote on 13 December, analysts Sberbank Investment Research. In their opinion, the Central Bank had to allow for an interest rate cut at the next meeting, February 8.
Chief analyst of the Bank Natalia, Wasiluk also singled out among the obstacles to more radical reduction rates increased sanctions risks — by February next year, the U.S. Treasury needs parabot the possibility of a ban on investment in Russian OFZ.
According to chief economist of Alfa Bank Natalia Orlova believes that a more drastic rate reduction, which did not expect most market participants, suggests that the Central Bank is not very well-constructed communication with the market. However, long-term expectations of the actions of the Central Bank yet do not break. “It is also unclear the rationale for the rate reduction by the actions of OPEC in my view, the essential argument in favor of this decision was the improvement in inflation expectations”, — the expert believes.
Chief economist at Eurasian development Bank Yaroslav Lissovolik, in turn, noted that before the meeting of the Central Bank in favor of the decision on more radical reduction in the rate of ovor the dynamics of the real sector in Russia and a record slowdown in inflation. In his opinion, market participants are somewhat overestimated the caution of the Russian regulator after the extension of the agreement OPEC+, it became clear that the probability of a rate cut by 0.5 percentage points is quite high.
The impact on the ruble
The change in the key rate did not affect the dynamics of the ruble. As of 14.15 GMT the dollar on the auction Mosberg fell 0.1%, the Euro gained 0.4%.
For investors the decision of the Russian regulator means reducing the gap in rates of the Central Bank and the US Federal reserve by 0.75 p. p.: Wednesday, December 13, the fed raised the interest rate by 0.25 PP to 1.25-1.5% per annum.
On the difference of rates in Russia and the United States based popular speculative strategy is the carry trade, in which investors are non-residents is at a low rate dollars in the US, convert them into rubles and buy Russian Federal loan bonds, which provide attractive yields due to higher rate of the Central Bank.
In October the share of foreigners on the OFZ market amounted to 32.7%, and it is gradually decreasing — in September this figure stood at a record level of 33.2%. The inflow of funds by foreign investors in the OFZ market in October was the smallest since June — only 3 billion rubles, said on the website of the Central Bank. In September, the figure amounted to 149 billion rubles.
Forbes interviewed experts, however, believe that the negative effects of reducing the difference between rates is largely already accounted for in the current dynamics of the ruble and debt markets.
According to Yaroslav Lisovolik, in the short term, the ruble may respond to the decision of the Central Bank’s slight decline, but in the long horizon, it will remain near the mark of 59 rubles per dollar, the differential between the rates in Russia and USA is still strong, and the dynamics of oil prices remains stable. A similar point of view adheres to a leading analyst of Promsvyazbank Roman Nasonov.
“Despite the decrease in the differential, it remains very high — 6,25 p. p. In this regard, we believe that the reduction of the key rate of the Bank of Russia will not affect the ruble exchange rate dynamics, which will continue to define the “risk appetite” of global investors and market conditions in commodity markets”, — he said.