Central Bank of Russia: durable status quo ahead

In line with expectations, the Central Bank of Russia (CBR) decided to keep its benchmark interest rate (on one-week repo operations) unchanged at 7.25%. Rather “hawkish” wording of the MPC statement mentioned the impact of the planned increase in the VAT tax in 2019, as well as the rise in gasoline prices stemming from the early 2018 increases in excise taxes as the major reasons of their “overshooting” the target inflation scenario for 2019. Besides, CBR clearly indicated that the shift to the neutral stance of monetary policy is postponed to 2019. Indeed, the balance of risks tilted to proinflationary ones with the second-round effects of the tax measures on inflation expectations and external factors (geopolitics, monetary policy tightening of the Fed, BoE etc.) . As such, the CBR should maintain the status quo throughout the year and announce no more than two additional cuts in 2019 .