Russian Sanctions Increase Chances of Bigger Central Bank Rate Hike – Morgan Stanley, JPMorgan

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LONDON, April 16 (Reuters) – Morgan Stanley now expects Russia’s central bank to raise interest rates by 50 basis points next Friday following US sanctions on the country’s sovereign debt market.

Washington blacklisted Russian companies on Thursday, kicked out Russian diplomats and banned US banks from buying sovereign bonds from Russia’s central bank, the National Wealth Fund and the Ministry of Finance, to punish Moscow for election interference , cyber-hacking and bullying from Ukraine.

Russia denies the allegations.

“Despite the moderate market reaction so far and therefore minor implications for inflation, we believe the CBR (the central bank of Russia) would like to provide additional support to the market,” Morgan Stanley’s Alina Slyusarchuk said in a note to customers.

“We now see the probability moving to a 50bp rise to 5.00% at the next meeting on April 23,” she said, adding that she previously expected a lower rise.

Meanwhile, JPMorgan also said the risk of the Russian central bank raising its policy rate by 50bp instead of 25bp had increased with the new sanctions.

“On the monetary policy front, as the new sanctions open a new chapter in the use of financial sanctions against Russia, risk premiums on Russian local currency assets could remain high for longer, which could ultimately lift the CBR’s assessment of a neutral policy rate, ”Saad said. Siddiqui at JPMorgan in a note to clients. (Reporting by Karin Strohecker; Editing by Toby Chopra)

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