WOOD Flash - Russia macro: CBR surprises to the upside again, amid accelerating inflation pressure
On Friday (22 October), the Board of Directors at the CBR decided to increase the key rate by 75bp to 7.50%, higher than our expectation of a 50bp increase. The overall tone at the meeting sounded increasingly hawkish, stating that the inflationary risks are tilted “markedly” to the upside and that additional tightening is in the pipeline. Judging from the tone, we see the possibility of a cumulative 75-100bp hike at the next two meetings, followed by a pause towards the middle of next year. We reiterate our guidance that, given the current global macro conditions and the policy rate above 7%, our fair value model of the USD/RUB puts the RUB on a long-term, very mild appreciating trajectory (about 0.5% per annum), thanks to the wider interest rate parity differential (IRP).
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