Ruble: the Bank of Russia launched a preemptive strike on inflation

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The Bank of Russia raised the rate by 0.25 percentage points to 7.75%, noting that this decision is proactive.
Overall, the ruble is good news. The USD / RUB pair lost in the moment 20 cents, falling just below the 66.25. EURRUB has decreased from 75.05 to 74.82. An important factor to support the ruble of steel hints at the willingness of further rate increases if necessary. In the coming year, the Central Bank should pass on thin ice because of the highly unfavorable combination of external and internal factors.
Interestingly, respondents analysts have failed to anticipate the rate increase and in September, both times for them, it was a surprise. It is obvious that the Bank of Russia increasingly focuses on markets that – on the contrary, was waiting for just such an outcome.
The difference in approach between traders and the markets is pretty simple: the first focused on the actual performance of the economy, the second – on the dynamics of the markets and expectations, which have deteriorated markedly in recent weeks.
At the global grounds growth efforts now give way to quick corrections, of which there were several. Markets are neither developing nor developed countries (including the United States, where, until October marked the rally) failed to vylavirovat on the path to growth. Moreover, there are increasing signs of a slowdown in the global economy-this, in turn, further exaggerating about the prospects.
The situation in the Russian economy also does not allow the Central Bank to rest on its laurels: although the inflation target is reached, it is clearly gaining momentum. In his comments the Bank of Russia calls it “the adjustment of prices to what has happened since the beginning of the year, the weakening of the ruble”. Most likely in the first months of the new year we can expect an even bigger jump following the increase in the level of VAT.
The CBR forecasts inflation by the end of next year will be 5%-5.5%, compared to current levels close to 4.0%. The inflation in the limits of this trajectory can be caused by unexpectedly strong price growth in Russia (the effect of tax changes on inflation is difficult to predict exactly), and the weakening of the ruble after oil and sanctions.
We must not forget about another factor. The CBR decided to resume purchases in the framework of the execution of the budget rules. Is a significant factor of pressure on the ruble, which will also heat up inflation. To counteract this force, the Central Bank, apparently, will have to take a tougher stance, that is, to raise rates or to postpone the time of resumption of the cycle of decline.
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Alexander Kuptsikevich,
Analyst
FxPro