INSUBCONTINENT EXCLUSIVE:
The Central Bank has set a high bar for further tightening but we think the balance remains tilted towards another interest rate hike this
quarter of 2023 and Central Bank Governor Elvia Nabiullina reversed a previous easing policy and has been increasing rates ever since in a
futile attempt to halt the price rises
to 9.5% last month but was a bit softer than the consensus (for 9.7%) but prices rose by a chunky 1.3% in month-on-month terms, Capital
In December, prices accelerated again, up 9.5% despite crushingly high interest rates of 21%
The problem is inflation is being driven by massive $100 billion a year of military spending, something that the Central Bank is powerless
to reduce.bne IntelliNewsAll components increased, with food inflation surging from 9.9% y/y in November to 11.1%, services rising from
11.4% y/y to 11.5% and non-food goods up from 5.7% y/y to 6.1%
Core inflation came in at 1.0% m/m which, over the fourth quarter as a whole, is equivalent to around 10% in seasonally adjusted annualized
the cause of the inflation is not problems with money supply, but the fact that the Kremlin has pumped some 10 trillion rubles ($100
of around 1.5%.The problem has been exacerbated by additional off-budget spending
According to a recent report from the Davis Center at Harvard University, the Kremlin has also forced banks to make state-direct soft loans
to defense companies to the tune of 25 trillion rubles ($250 billion), which has added to the torrent of cash pouring into the system
the size of the problem is the enormous spread of 11.5% between interest rates and inflation, the real interest rate, an unprecedented level
in traditional monetary policy
rates should be cut by 450 basis points to 16.5%, according to the Taylor rule, an economic tool for estimating the appropriate prime
borrowing and bring down inflation that way
But inflation is out of control and we think the bias will remain towards further monetary tightening in the coming months as inflation
