Probably the end of CBRT easing
► This is the last time. While a grasshopper can leap 20 times its body length, it can’t jump forever. Rate cuts end here, or they must. This is the first and foremost explanation that accounts for the behavior of the exchange rate: 325 basis points were anticipated and fully priced in, and people think this is the last move for a long time to come.
► Obviously, the global scene provides the sine qua non here. I can only hope that people understand how lucky they are at this point. This isn’t policy success; this is sheer luck.
► I also basically think that the incoming Fed rate cut sequence isn’t to be taken for granted. Fed may toy with it for a while, just as it did before beginning to hike the FFR.
► There is a chance inflation will visit 9.8 percent within three weeks, and head north from there again, albeit smoothly. A 12-month ahead 12 percent forecast, that is the current market consensus, looks realistic.
► That implies 15 percent minimum deposit and secondary market bond rates looking forward. A 3 percent expected real rate is warranted still, despite the global U-turn driven by the Fed. Sheer luck will only help this far.
► Consider the bizarre path of the CBRT funding rate since 2011. Basically, since 2013 ‘taper tantrum’ it has been trending up all the way from c. 9 percent to c. 24 percent, and it is down now by 725 basis points. A good part of this was the price to be paid in order to prevent the exchange rate from leapfrogging further. Now, part of the last three years funding cost rise will have to be kept there so the exchange rate remains subdued. I think we are already there.
► It depends on inflation from now on. Given the current expectations, this rate is barely about right, or even a bit low as funding goes. We’ll see shortly which is which.
Another cut, and there will be a problem.