Prob­a­bly the end of CBRT eas­ing

Dünya Executive - - DATA -

► 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.

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