Broad definition monetary base increased by 7.9% y/y as of end of July 2013, slowing down from 11.5% y/y seen in June and 14% y/y in May and April, report by the Central Bank of Russia (CBR) shows. In m/m terms broad monetary base decreased by 2.2% m/m. Despite positive m/m dynamics for previous three consecutive months broad monetary base did not recover from January’s 14.5% drop. As of end of August monetary base was at RUB 8.862tn (USD 266bn), RUB 0.99tn or 10.1% ytd lower than as of end of 2012.

The decline of the indicator in July in both m/m and y/y terms is to be attributed entirely to fluctuations in the correspondent accounts and deposits with the CBR. Correspondent accounts with banks declined by 6.6% y/y and 18.5% m/m to RUB 817.4bn in July after gaining 41.2% y/y and 12.2% m/m in June. Deposits with the Central Bank lost 5.7% y/y and 12.4% m/m to RUB 125.7bn in July after going up by 5.7% y/y and 15.4% m/m in the previous month.

Money in circulation remained more stable slipping by 0.1% m/m and maintaining y/y growth of 9%. The indicator amounted to RUB 7,411.5tn as of end of July 2013.

As reported, M2 posted growth of 15.3% y/y in May 2013 vs. 15.2% y/y growth seen in April, according to the data by the Central Bank of Russia (CBR). Q1/13 (average growth of 14% y/y) M2 dynamics followed a stable deceleration of indicator’s growth throughout 2012 (from 22.3% y/y in January 2012 to 19% in June to 11.9% y/y in December 2012). To compare, 20.6% y/y M2 growth was posted in May 2012, 20.1% y/y in May 2011, and 30.7% y/y in May 2010.

M2 inched up by 0.9% y/y in May after 1.4% m/m growth seen in April. In absolute terms M2 amounted to RUB 28.084tn (USD 855bn), cash in circulation was RUB 6.349tn, and non-cash funds were at RUB 21.735tn as of end of May. Cash in circulation remained flat m/m in May after 2.8% m/m increase in April. Non-cash funds went up by 1.1% m/m, m/m growth rate unchanged since March.

The CBR that expected the growth of monetary supply to decline below 20% by the end of 2012, maintained that declining money supply growth rates are going to help curbing inflationary pressures. However, in March and April’s monthly policy releases the central bank signaled the beginning of a softer policy cycle, cutting the rates on long-term operations and recognizing the risks of economic slowdown. In May and June the anticipated cut of the refinancing rate (8.25%) and other main rates was postponed only due to inflation peaking at 7.4% in May.

New head of the CBR Elvira Nabiullina told the press on the decision that the central bank will only cut the rates once a consistent decline in prices is confirmed.

The next meeting of the BoD of the central bank is going to held on August 9 2013. As inflation was recently reported to moderate further to 6.4% y/y in July, the expectations of a more pronounced monetary easing increase. It is not certain that the CBR will cut the refinancing rate by one notch of 25bps already in August, but a cut in main interest rates is likely during Q3/13.