Macroeconomic preconditions for the growth of the key rate of the Central Bank yet, but the market is waiting for its increase with a probability of 86%. 14 September, the Central Bank should take into account the fundamental factors, the situation with the ruble and to prove their independence
Photo: Ekaterina Kuzmina / RBC
The market is waiting for analysts — no
On 10 September launched the so-called week of silence now, the Central Bank until 14 September, the day of the announcement of the decision on the key rate, avoid statements on the subject of monetary policy. A few days before the announcement of the decision of the Board of Directors of the Bank between dimensions actually formed a consensus: in spite of the overall changed in recent rhetoric, Central Bank and his head of Elvira Nabiullina about the factors in favor of raising the key rate, most believe that it will not change.
Of the 22 participants of the consensus forecast of Bloomberg all 22 suggested that the Central Bank would leave the rate at 7.25%, and among the 24 participants in the consensus Reuters only one — the Director of analytical Department of “Loco-invest” Cyril Tremasov — called for its increase. According to him, the market situation is “close to panic and more and more recalls in 2014” (December 16, 2014 with the transition of the Central Bank from the policy of the currency corridor to inflation targeting, the Euro soared to 100 rubles and the dollar 80 rubles).
The market, in contrast to the majority of analysts expects the Central Bank rate hike at the next meeting. Rate money market Mosprime (at indicative rate of granting of ruble loans on the interbank market) three months from the end of July increased from 7,40 was 7.45 to 7.74% on September 10. Last week, the Department of research and forecasting, the Central Bank acknowledged that “the dynamics of rates on the Russian money market indicates that markets expect interest rates hike by the Bank of Russia in response to higher inflation risks”.
“Wait out the volatility”
The level of rates calculated from the value of the index swaps (OIS) shows 86 percent chance of a rate hike at Friday’s meeting, the Central Bank, says investment strategist “BKS the Prime Minister” Alexander Bakhtin. “Investors currently receive a sufficient number of signals from the regulator about its intention to tighten monetary policy. In addition, market participants in the current instability in need of a clear position of the regulator, which would be aimed at protecting the national currency, and stop the collapse in the markets OFZ” — says the analyst.
The market is very illiquid, the presence of professional investors there are very low. Therefore, the market indicators that should indicate expectations of interest rate hikes is only a consequence of the low liquidity of the market, says chief economist at Alfa Bank Natalia Orlova. According to her, the fundamental reasons for raising rates now is not. Other emerging markets are experiencing volatility, increase interest rates because they are forced to place their bonds because of the need to refinance debt. Russia is so dependent on international capital, as there is no such high rate of growth as other emerging markets, explains Orlov.
Until the beginning of August the markets were laid on the script further, albeit moderate, reduction of the rate of the Central Bank in the second half of 2018 and 2019, recalls the chief economist of the Russian direct investment Fund Dmitry Polevoy. After the rhetoric, the Central Bank has changed, the indicators on the market rose to marks, formally allowing the rate increase. However, this fact reflects the sharp increase in uncertainty on the markets, which translates to a higher risk premium, and to separate themselves expectations of rate increases from the increased risk premiums is quite difficult, Field said.
If the active exit of investors from Russian instruments continues, the probability of a rate hike exists, says chief economist for Russia and CIS Bank of America Merrill Lynch Vladimir Osakovsky. Nevertheless, the current situation in the markets caused by temporary factors rather than fundamental. Therefore, the Central Bank may try to “ride out” the volatility and not to change anything, as has happened in similar situations in 2015-2016, says the analyst.
“I believe that this (rate increase. — RBC) will be extremely undesirable action, because that would hinder the investment activity, and also will lead to additional budget expenditures,” said 10 September, presidential aide Andrei Belousov, answering the question of whether he sees grounds for the growth of the key rate of the Central Bank.
(Photo: Donat Sorokin / TASS)
Review Belousova can be perceived by market participants as a kind of desire and limit policy of the Central Bank, says Natalia Orlova of Alfa Bank. Even unskilled investors who operate on a very short horizon, can move the market lower on these comments, she believes.
The assistant President was the second in several days a statement of the authorities concerning the monetary policy of the Central Bank. Last Friday, Prime Minister Dmitry Medvedev said that “we need to move from neutral to stimulating regulation of the sphere of lending”. According to some experts, the ruble has updated lows against the dollar and Euro in the spring of 2016, including this review of the Prime Minister.
Statements of officials discord with the rhetoric of the Central Bank, which the regulator held recently. If the Central Bank on 14 September to leave interest rates unchanged, taking into account the observed pressure on the Central Bank from the government, the markets may be flooded with a new wave of panic, said investment strategist “BKS the Prime Minister” Alexander Bakhtin. In the case of the scenario of panic strength of the debt market could be under real threat — the yield of OFZ can aspire to the levels of 10% on the long end of the curve, warns expert (now ten-year OFZ bonds traded with a yield of 9.21%).
Signals from the authorities rather increases the probability of a rate hike: the Central Bank may be forced to act in order to show his independence, suggests osakovskiy from Bank of America Merrill Lynch.
Not only the ruble
Last week, Elvira Nabiullina among the factors in favor of raising rates called increased volatility in the financial markets not only in Russia but in the world and the return of inflation to target, the Central Bank (4%) faster than expected. It is the preservation of price stability is, by law, the primary mandate of the Central Bank. However, the decline is observed not only in the foreign exchange market is falling and the market of the Russian debt securities, of which amid economic concerns rapidly foreign investors. On Monday the average yield on Russian OFZs (RGBI index) was 9.1% — the highest since June 2016, when the key rate was 10.5%.
In itself, the decision of the Central Bank to keep the rate is unlikely to affect the market, says Dmitry Polevoy from the FUND, much will depend on the rhetoric of the regulator, in addition, now the market husbando largely responds to external risks. Last week, the Central Bank and the Finance Ministry has already described the possible actions in case of realization of a negative scenario, the analyst: they can enter the market with purchases OFZ, if necessary, and the account balances of the Ministry of Finance is enough to quite a long time to go without loans.
Another factor that the Central Bank will have to consider when deciding to bet, is the observance of budget rules, analysts of “VTB Capital” in his review. At the end of August because of the situation on the currency market, the Central Bank decided to abandon the purchase of currency for the Treasury, which he spent in the budgetary rules, until the end of September. The decision was made after unsuccessful return to the Central Bank purchases caused the collapse of the ruble to two-year lows. Now, write the analysts of “VTB Capital”, the Central Bank faces a dilemma: “the smoother path of the key rate or strict adherence to budgetary rules”. Keeping the key rates unchanged, is likely to require the extension of the pause in the purchase of foreign currency, while for a more rapid return to this practice, the key rate should be raised, says the review.