National definition monetary supply (M2) posted growth of 16.1% y/y in September 2013 slowing down as compared to 17% seen in July and August, according to the data by the Central Bank of Russia (CBR). In Q3/13 the average growth of the indicator was 16.7% y/y, accelerating after 15.3% y/y average growth of M2 seen in Q2/13 and 14% y/y in Q1/13. This followed a stable deceleration of indicator’s growth throughout 2012 (from 22.3% y/y in January 2012 to 19% in September to 11.9% y/y in December 2012).

To compare, 14.7% y/y M2 growth was posted in September 2012, 20% y/y in September 2011, and 31.2% y/y in September 2010.

In m/m terms, M2 decreased by 0.5% m/m in September, making the first m/m decline since January 2013. In absolute terms M2 amounted to RUB 28.629tn (USD 897.4bn), cash in circulation was RUB 6.41tn, and non-cash funds were at RUB 22.21tn as of end of September. Cash in circulation declined by 1.5% m/m in September. Non-cash funds went down by 0.2% m/m and increased by 18.9% y/y accounting for 89% of M2’s y/y gain.

Despite slightly accelerating dynamics of M2 throughout Jan-Sep 2013 the growth rate of the indicator is likely to decline to 14%-15% y/y by the end of 2013. The CBR in September’s and October’s policy releases came back to a tougher monetary stance and inflation targeting, after signaling a possible beginning of a government-pushed softer policy cycle in spring.

Head of the CBR Elvira Nabiullina argued that CBR’s main contribution to the economic development is through curbing inflation. Monetary stimuli at this point would contribute to price growth, rather than to closing the output gap, she believes. Inflation in the past two months converges to the CBR’s target of 5%-6% (estimated by the central bank at 6% y/y as of October 6).

In October’s press release the central bank does not expect the situation with the slow economic growth to change, stressing that its main concern is inflationary expectations and signs of more pronounced moderation of inflation. At the same the wording of October’s CBR press release led analysts surveyed by Reuters and Finmarket to believe that the central bank leaves a window for changing the rates in November or December.  

The main interest rates maintained the same for twelve consecutive months. Last time it was upped by 25bps in September 2012 to help curb inflationary pressures. A cut in the rates is still expected by the end of 2013. However, bold moves by the CBR are unlikely.