Russia's annual consumer price index in November declined to a record-low 5.8%, down from 6.1% in October and on the way to meet the central bank's full-year price growth target of below 6%, according to a December 6 data release by Rosstat.

Earlier in the month, Central Bank of Russia (CBR) governor Elvira Nabiullina reiterated the tight monetary stance guidance, saying the regulator will maintain  "moderately tight" monetary policy for another six months at least. The next cut to the 10% key interest rate will be postponed until the first or second quarter of 2017, Nabiullina said.

Therefore the remaining meeting of the regulator's board scheduled for December 16 will keep the interest rate unchanged.

 

"Low inflation remains our utmost priority," stressed Nabiullina, who through a string of unpopular decisions brought price growth down from over 15% in late 2014 and now targets 4% inflation in 2017.

Russia's inflation is well into single digits for the first time since since the crisis of 2008. If the central bank succeeds in bringing it to 4% this would mark a transition to normalcy after the 2008-2009 and the 2014-2015 crises.

November's inflation data again beat expectations, posting 0.4% month-on-month versus 0.6% m/m and 5.9% y/y forecast in a Reuters survey of analysts, with the 5.8% y/y CPI reading being the lowest since July 2012.

The year-to-date inflation (from end of December 2015 to end of November 2016) posted 5% in the reporting month, meaning that even with some usual inflation end-of-the-year inflationary risks the CPI is almost certain to meet the central bank's full-year target and stay below 6%.

The m/m inflation surprised positively for the second month in a row, Alfa Bank wrote on December 7, noting the possibility of the annual inflation easing to 5.2-5.3% y/y for the whole year of 2016 versus the bank's previous 5.5% forecast.

Nevertheless, Alfa remains cautious on the 2017 inflation outlook for a number of reasons, its chief economist Natalia Orlova notes. The bank reminds that 2016 has been marked by tight budgetary policy, while 2017 will start with a one-off pension increase in January.

"We believe that this year the cabinet is making strong efforts to curb inflation in order to limit the scale of social expenditure growth in 2017, but this does not mean that the preference for tight budget policy will prevail next year also," the bank argues. It warned that "the success of the 2016 inflation trend should not be misleading and does not guarantee a continuing deceleration in price growth in 2017".