Russia Instant Insight: Central bank is due to hold regular policy meeting amid rising geopolitical tensions
Since the previous policy meeting held on 9 February, a new bout of geopolitical tensions has replaced the global market turmoil. As before, we expect the CBR to remain on a steady course and continue easing its policy at the next meeting due on 23 March. We expect a 25bp cut next Friday; meanwhile, the outlook for 2Q now appears cloudier. We think that fiscal policy after the Presidential Election scheduled for 18 March will likely be the main determinant of the path of CBR’s monetary policy in the remainder of 2018.
- The next CBR policy meeting is going to be held in an atmosphere of rising tensions between Russia and the West, following the poisoning of double agent Skripal and his daughter with a highly toxic nerve agent in the UK. Both the UK and US have announced new sanctions, however, they do not target any assets or terms of doing business with Russian companies or banks.
- While some EU leaders have joined the chorus of condemnation, we think that the probability of the EU joining any meaningful sanctions is not high.
- Meanwhile, geopolitical tensions have also risen in Syria where government forces are trying to take control over a suburb of Damascus. Worryingly, Russia has promised to shoot down US missiles if the US launches a strike against Syrian government forces. It appears that Russia and the US have not been so close to direct military confrontation since the Cuban Missile Crisis.
- On Sunday 18 March, the Russians are heading to ballot boxes to elect their President. Given the guaranteed result of the election, it will likely have a minimal influence on the outcome of the March policy meeting. However, the regulator may finish its easing cycle sooner if the government’s fiscal policy becomes looser after the elections... (see more in the attached file)
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