Thursday, December 11, 2014

11/12/2014: Central Bank of Russia: The Bad & The Ugly...

In recent weeks, Russian Central Bank has issued a number of statements relating to interest rates policy. These included 
- Repeated concerns with inflation that hit 9.1% in latest data readings
- Concerns with effects of higher interest rates on investment
- Concerns with Ruble valuations (although much more muted compared to previous months); and
- Concerns with capital outflows.

Today, CBR hiked rates by 100 bps to 10.5%. Which is a contradictory move because:
1) 100 bps is clearly not going to be enough to arrest Ruble decline and slow down capital outflows
2) 100 bps will not be enough to dent inflation in the short run; and
3) 100 bps is strong enough to put even more breaks on investment.

Following the announcement, Ruble weakened against the USD and CBR upped its warnings on Q1 2015 inflation saying it might hit above 10%. Economic growth slowdown warning followed with CBR saying 2015-2016 growth outlook now risks 0% GDP expansion.

 Charts courtesy of @Schuldensuehner and @guardian 

We now have both the Bad and the Ugly, with the Good nowhere to be seen.

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