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16 Dec 2014
CBR starting on the correct course of action – BTMU
FXStreet (Barcelona) - Derek Halpenny and Lee Hardman, at Bank of Tokyo-Mitsubishi UFJ, note that the Central Bank of Russia’s action to increase the core policy rates to 17% was correct.
Key Quotes
“The response by the Central Bank of Russia to the rouble crisis by aggressively raising the key official interest rate from 10.5% to 17% early this morning, has as of yet failed to restore order in the Russian financial markets.”
“The MICEX is nearly 7% down as we write, the sovereign 5-year CDS price has soared to 555bps, the highest level since the aftermath of the collapse of Lehman Brothers in Q1 2009 and USD/RUB is now over 12% higher after yesterday’s 10% increase. The obvious conclusion to the rate increase early this morning is that it hasn’t worked in reversing the collapse in confidence.”
“But we believe the actions by the Central Bank of Russia this morning were correct. The major mistake made was on 11th December when the CBR raised the key rate by only 100bps and Governor Nabiullina explained that to have tightened more aggressively would have been damaging for the economy and that the move wasn’t related to trying to stem rouble depreciation.”
“Then to make matters worse the CBR, yesterday reinforced the agnostic approach to the currency by offering assumptions for the economy and currency if crude oil prices were to remain at current levels.“
“The conclusion of the CBR was that even if external conditions remained as they were, the inflation rate would gradually return toward target by 2017. It also predicted economic contraction of between 4.5%-4.7% in 2015 with oil at USD 60pbl.”
Key Quotes
“The response by the Central Bank of Russia to the rouble crisis by aggressively raising the key official interest rate from 10.5% to 17% early this morning, has as of yet failed to restore order in the Russian financial markets.”
“The MICEX is nearly 7% down as we write, the sovereign 5-year CDS price has soared to 555bps, the highest level since the aftermath of the collapse of Lehman Brothers in Q1 2009 and USD/RUB is now over 12% higher after yesterday’s 10% increase. The obvious conclusion to the rate increase early this morning is that it hasn’t worked in reversing the collapse in confidence.”
“But we believe the actions by the Central Bank of Russia this morning were correct. The major mistake made was on 11th December when the CBR raised the key rate by only 100bps and Governor Nabiullina explained that to have tightened more aggressively would have been damaging for the economy and that the move wasn’t related to trying to stem rouble depreciation.”
“Then to make matters worse the CBR, yesterday reinforced the agnostic approach to the currency by offering assumptions for the economy and currency if crude oil prices were to remain at current levels.“
“The conclusion of the CBR was that even if external conditions remained as they were, the inflation rate would gradually return toward target by 2017. It also predicted economic contraction of between 4.5%-4.7% in 2015 with oil at USD 60pbl.”