It will be decided whether the Central Bank raise rates?

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This Friday, September 14, will be a meeting of the Bank of Russia. The main question will decide whether the regulator for a rate hike? In recent weeks, betting on Russian debt and money markets increased significantly (the yield on OFZ bonds rose 1.5%), giving the controller a clear signal for tighter monetary policy. At the same time, according to polls, the majority of the experts did not expect at Friday’s meeting for a rate hike. For maintaining rates at the current level was also supported by Prime Minister Dmitry Medvedev and presidential aide Andrei Belousov.
Given the independence of the Central Bank from political authorities, their statements look a little strange. Perhaps they are associated with hidden political games. In the event of a slowdown in the Russian economy, will be the occasion to shift the responsibility for CBR.
If you look fundamentally, in favor of raising rates play a possible acceleration of inflation to the end of the year and the weakness of the ruble. But the maintenance of the ruble has never been the main goal for the Bank of Russia. Note that the current weakening of the ruble due to the risk of extension of sanctions against Russia and General weakness of the currencies of developing countries, so that a rate hike unlikely to help ruble. There need other “drugs” – improving relations with the United States and stabilize the dynamics of emerging markets.
In chess there are two term – time trouble and zugzwang. The first means a lack of time for reflection, and the second is the situation where your every decision can lead to the deterioration of the position. The Bank of Russia is now at the same time in a state of time pressure and zugzwang. Any decision in the meeting on 14 September, may be negatively interpreted by investors.
If the Central Bank will leave the rate at its current level, the number of experts may say that the regulator loses control over the situation, and the rate decision was influenced by political authorities. Loss of independence by the Central Bank negative for the national currency. We saw this with the example of the collapse of the Turkish Lira after Turkey’s Prime Minister Recep Erdogan tacitly forbade the cbrt much to raise. If the Bank of Russia on Friday will raise the rate by 0.25%, this can be interpreted so that the Central Bank went on about the market. In this case, if before the end of the year the situation in emerging markets stabiliziruemost, CBR is the question – was there a need to up the ante.
Note that the meeting on 14 September will be a press conference Elvira Nabiullina and the publication of the report on monetary policy. So the CBR has additional tools to assure the markets in control of the situation. To calm investors may be sufficient to show an adequate assessment of the situation and keep a “cool head”. Apparently, the rate decision will be made at the last moment, to consider all nuances. Positively that before the meeting of the Central Bank of the Russian Federation on Thursday will be meetings of the ECB and the Bank of Turkey: the Russian regulator will be additional information for reflection.
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Roman Tkachuk,
Senior analyst,
Alpari