Russia Watch: Slower price growth allows for further key rate cuts

In April, inflation added 17.8% yoy (vs 16.7% yoy in March). After the first week of April, the inflation pace has moderated remaining at ~0.03% dod, which pushed the CBR to cut the key rate by 300bp at the end of April with further easing likely.

Inflation and key rate forecast

CBR, RBI/Raiffeisen Research

The breakdown of inflation dynamics has not changed significantly: goods inflation exceeded the composite index (20.5% yoy and 20.2% yoy for food and non-food, respectively) while services price growth is trailing behind, at only 10.9% yoy. In monthly terms, food products became the key price growth driver (1pp out of 1.45% mom adjusted for seasonality in April) instead of non-food items last month. Within non-food goods there is a range of products that fell in price (mainly electronics amid rouble appreciation), which curbed the overall index. Price dynamics in services are relatively calm, the March spike in foreign travel prices has faded out (1% mom sa vs 37% mom sa previously).

In May, the inflation picture is likely to moderate further amid slumping consumption. However, a delayed crisis effect, mainly related to import shortages, could result in delayed price spikes for certain products. In the meantime, the CBR appears to be concerned with weakening economic activity and monetary policy easing could be continued as soon as the coming meeting in June (to 12%, by 200bp in our updated forecast) aiming at 10% by YE 2022. If inflationary risks do not prevail (cost inflation and potential shortages for certain products), the key rate could be brought to this level in Q3 2022, in our view.

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Gregory Chepkov is a macroeconomic analyst at Raiffeisenbank Russia. He joined the team in December 2020, during the first pandemic winter. Gregory originally joined Raiffeisen Bank in 2017 and before the research department, evolved his skills in integrated risk management, in particular performing macroeconomic stress-testing exercises. BSc in Moscow Institute of Physics and Technology and MSc in Higher School of Economics gave him a solid background, which was widened by becoming a Certified FRM. His extracurricular activities include being a football team captain and enjoying freeride snowboarding.

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Stanislav MURASHOV

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Stanislav Murashov, chief economist for Russia at RBRU, director. Has more than 10 year experience in macroeconomic analysis. Joined Raiffeisenbank in 2016, before worked for Rosbank (Societe Generale group) as an economist for Russia. Previously, worked for the Ministry for Economic development of Russia and the Central Bank of Russia.