“Investors in the debt market is expected to reduce the key rate of the Central Bank of the Russian Federation on 25 b.p.

It is also expected to increase in the activity of issuers to the end of the year

Moscow. 26 Oct. INTERFAX – CBR meeting on Friday, October 27, will lower its key rate by 25 basis points (b.n.) to 8.25%, respondents believe the “Interfax” investors in the debt market.

In this case, the market price already incorporated a more aggressive easing of monetary policy (DCT), so a further decrease in yields is possible only because of the traditional influx of liquidity into the market at the end of the year due to the budget cycle.
However, experts agree that by the end of the year you can expect an increase in activity in the market of primary placements.
At the previous meeting, in September, the Board of Directors of the Central Bank decided to cut rates by 50 b.p. – to 8.50%. The rate was lowered for the fourth time in 2017, the total reduction amounted to 150 b.p. At the beginning of 2017 the key interest rate stood at 10.00%. Until the end of 2017, the CBR will have another meeting on the key rate on December 15.

By 25 b.p.

Interviewed by “Interfax”, the experts agreed that despite the significant slowdown in inflation, the Bank of Russia is likely to implement mitigation DKP more cautiously, by 25 b.p. but not 50 used.p.

“We “set” that the Central Bank tomorrow will cut the key rate by 25 b.p. In recent days, many analysts have revised their forecasts in favor of lowering the key rate by 50 b.p. amid record low inflation, but we believe that the CBR will be more conservative in easing monetary policy and leave yourself a margin for manoeuvre for the future,” says senior portfolio Manager of UK “Kapital” Dmitry Postolenko.
As reported, based on weekly data of Rosstat, inflation in annual terms for October 23 fell below 2.7% and was in the middle of the interval of 2.6-2.7 per cent. At the end of September, the figure was 3.0%.

“Despite the fact that inflation is indeed at a historical minimum for Russia in the near future possible the strengthening of the dollar (due to the appointment of a new head of the U.S. Federal reserve, which is expected to be a supporter of more aggressive rate hikes), and as a consequence – the strengthening of the dollar. In addition, in December traditionally expected significant payments of Russian companies on external debts”, – said D. Postolenko.
The same opinion regarding the step of reducing adheres to the General Director of “MC Sputnik – capital Management” Alexander Losev. “In my opinion, the Central Bank on October 27 will lower its key rate by 25 b.p. Until the end of the year the regulator will have two more meetings, including tomorrow, so the time to reduce still is, based on the forecast that by the end of the year the key rate will be 8%”, – he said.

According to Losev, before deciding on more drastic steps to mitigate the monetary policy, the Bank of Russia, probably, “you need to make sure that inflation stuck at low levels, and will not return again, moreover, the Russian regulator can not take into account the growing expectations of a fed rate hike United States.”
A more cautious reduction in the Central Bank expects Evgeny Korovin, head of Department of securities of fixed income, managing Director UK “Sberbank Asset Management”.

“We, like most market participants expected a rate cut at the next meeting of the Central Bank of the Russian Federation, and believe that the chances of a rate cut as a 25 b.p. and 50 b.p. approximately equal. Perhaps the controller will have a careful decision and reduce rates by 25 b.p.”, – said Korovin.

For more cautious step, he expressed and analysts Promsvyazbank (MOEX: PSBR), in his review, noting that “the second consecutive decline in the key rate by 50 b.p. after just 6 weeks since the last meeting did not really fit in the current paradigm of gradual easing of monetary policy, has repeatedly voiced by representatives of Bank of Russia”.

In addition, experts remind the Bank, in the October report “as evidenced by trends”, Bank analysts note the increasing pricing pressure in the consumer market in September, based on the modified dynamics of core inflation. Current deviation of inflation from target down is due, primarily, to temporary factors: the strengthening of the ruble and a good harvest.

The resistance reduction is already incorporated

When interviewed by the “Interfax” experts say that prices in the debt market already incorporated the reduction in the rate of the Bank of Russia, and even more aggressive.
“In the secondary market investors in the OFZ actually already laid an aggressive reduction of the key rate down to 7%, so if tomorrow the key rate will be reduced by only 25 bps.p. the OFZ yields some rate correction is possible,” – says the portfolio Manager of UK “Transfingroup” Ivan Belov.
Losev, however, believes that the correction will not happen, because the stakes on the Russian market still remains attractive from the point of view of the global market.

“As for the local debt market, of course, traditionally there has already been laid, a more aggressive reduction of the key rate, but I don’t think that by reducing the key rate by 25 b.p. possible any correction, since real interest rates in the Russian economy still remain attractive for investors compared to markets in other countries,” – said General Director of “MC Sputnik – capital Management” by A. Losev.

The burst of activity

If the rate will be reduced in step 50 b.p. that allows you to make a historically low inflation, the market of primary placements of possible increased activity, says Korovin from UK “Sberbank Asset Management”. “Because issuers are waiting to more aggressive reduction of the key rate, waiting for the meeting of the Central Bank of the Russian Federation”, – he said.

The growth in the sector also expects issuers I. Belov UK “Transfingroup”. “As for the market of IPOs, in General, if any decision of the Bank of Russia is now extremely favorable environment for the host because of yield decline, and ruble liquidity in the system a lot, and by the end of the year it will be even more because of spending the Reserve Fund. We can say that the market is waiting for new placements and names.”

In General, yields on the local debt market is close to minima, which also may encourage issuers to actively enter the market, says Postolenko of UK Capital. “Some reduction in yield may still is that the traditional December liquidity to the market as a result of budget expenditures”, – he concluded.

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