News, 12 Feb 18

CBR cuts key rate by 25bp to 7.5%

In line with market expectations, the Bank of Russia cut the key rate by 25bp to 7.5% per annum on 9 February.

In their statement, the CBR observed that ‘short-term pro-inflationary risks have abated’, that 'the balance of inflationary and economic risks has shifted slightly towards the risks to economic growth’ and that ‘in this environment the Bank of Russia will continue to reduce the key rate and may complete the transition from moderately tight to neutral monetary policy in 2018’. In her recent comments, the CBR’s Governor Nabiullina has alluded to a key rate of 6.0 - 7.0% p.a. as representing a near-term neutral level, supporting Prosperity’s view of further reductions in the key rate this year.

It is noteworthy that the shift to a stable growth, low inflation and interest rate environment sets conditions that are conducive of a potential credit cycle, whilst it is also interesting that Russia is in an easing cycle whilst most other nations are in a tightening one.

The return of the key rate to 2014 levels is accompanied by several other ‘post-crisis’ indicators, including for example CDS spreads having returned to those ‘norms’. Russian public equity valuations continue to be rather depressed and we remain positive on the value presented by our portfolio companies.