National definition monetary supply (M2) posted growth of 17% y/y in May 2013 vs. 15.5% y/y growth seen in June, according to the data by the Central Bank of Russia (CBR). In Q2/13 average growth of the indicator was 15.3% y/y accelerating after 14% y/y average growth of M2 seen in Q1/13. This follows a stable deceleration of indicator’s growth throughout 2012 (from 22.3% y/y in January 2012 to 19% in July to 11.9% y/y in December 2012).

To compare, 17.8% y/y M2 growth was posted in July 2012, 20.3% y/y in July 2011, and 31.1% y/y in July 2010.

In m/m terms, M2 increased by 0.8% m/m in July after 1.5% m/m in June and 1.5% in May. In absolute terms M2 amounted to RUB 28.736tn (USD 862bn), cash in circulation was RUB 6.48tn, and non-cash funds were at RUB 22.25tn as of end of July. Cash in circulation remained flat m/m in July. Non-cash funds went up by 1% m/m and 20% y/y accounting for 88% of M2’s y/y and 96% of m/m overall gain.

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 government-pushed softer policy cycle. Since then, CB cut the rates on long-term operations, recognized the risks of economic slowdown, and introduced new longer-term liquidity instruments in addition to REPO and collateral auctions.

In May and July the anticipated cut of the refinancing rate (8.25%) and other main rates (5.5% REPO auction rate) was postponed only due to inflation peaking at 7.2% and 7.4%, respectively.

In July and August the CBR was expected to cut the main rates after inflation moderated to 6.9% y/y in June and 6.5% y/y in July. However, the rates’ cut was still held back. Newly appointed head of the CBR Elvira Nabiullina, told the press that the central bank will only cut the rates once a consistent decline in prices is confirmed. CBR’s target inflation range for 2013 is 5%-6%.

While it is still not certain that the CBR will cut the refinancing rate by one notch of 25bps in September, a cut in main interest rates is largely expected by the end of 2013. The next monthly meeting of the CBR’s board is scheduled for September 13.