RenCap expects Russian inflation to slow, Kazakh money to plunge

Renaissance Capital, a Russian top-tier privately-owned investment bank, has forecast that inflation will decline in Russia but will rise in Georgia and Kazakhstan in the near term, and that the Kazakh currency will plunge by nearly one third by the end of September.

“We expect inflation in Russia to slow from its recent highs of 15%-16% to 11.1% by end-2015 and 6.7% by end-2016, owing to Russia’s large output gap, the central bank’s tight stance and restrictive government policies,” RenCap macroeconomics analyst Oleg Kouzmin said in a report. “We estimate it could decline even further in 2017, to 5.1%.”

Kouzmin described the Russian government’s inflation target of 4% for 2017, which was confirmed by the central bank on July 31, as “challenging”.

Inflation speeded up slightly in Russia in July because of tariff increases, but RenCap’s medium-term outlook “remains moderate”, the analyst said.

RenCap, a Moscow-headquartered firm that specialises in emerging and frontier markets and does business in Eastern Europe, the Middle East, Asia and Africa as well as Russia and has offices in London, New York, Dubai, Istanbul, Nicosia, Johannesburg, Nairobi and Lagos, estimates that the annual consumer price index will fall to 11.1% by the end of 2015 and to 6.7% by the end of 2016 from 15.8% as of July 20.

In Georgia and Kazakhstan, on the other hand, inflation is likely to go up, Kouzmin argued, basing his forecast on former episodes of the Georgian currency, the lari, getting weaker and an anticipated fall of the Kazakh currency, the tenge. RenCap expects the tenge to plummet by about 28% by the end of September.

The Russian central bank on Friday reduced its key interest rate to 11% from 11.5%. RenCap expects the regulator to “continue its easing cycle” and further cut the rate to 10% by the end of 2015 and to 6.5% by the end of 2016, Kouzmin said.

The analyst argued that a weaker ruble should not be an obstacle to a moderate rate cut.

The Georgian central bank plans to raise its rate to 6.5% by the end of 2015 from today’s 5.5%. “We believe the rate could be maintained at 6.5% for the whole of 2016,” Kouzmin said.

The Kazakh central bank “has announced plans to move to an inflation-targeting regime by 2020”, he said.

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