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The Central Bank of Russia is expected to continue the series of the key rate cut. There is a 100 percent possibility for the CBR to continue cutting its key interest rate, noted Nordea Bank in a research report. Inflation in the country is at the lowest levels since the post-Soviet period. Furthermore, the inflation expectations are trending lower.
In the meantime, the Russian economic growth figures are not positively surpassing expectations at present. Growth in retail sales continues to be negative, while capital construction fell 5.4 percent in the first quarter of 2017. Also, investment activity growth continues to be symbolic. Thus, certain stimulus is required and it can be achieved through easing of the monetary policy.
Firms in Russia do not mention the interest rates as the top thing as the hindrance for business development. Meanwhile, money market rates have already begun pricing in a rate cut.
There are some factors that might prevent the Russian central bank from aggressive rate cuts. There is uncertainty regarding the OPEC/OPEC+ agreement for the second half of this year. If the agreement is not prolonged, oil prices might decline and inflation might accelerate in tandem resulting in depreciation of the RUB. Meanwhile, high consumption growth can also pose as a threat to the inflation. Additional aggressive rate cuts would stand out against the central bank’s cautious rhetoric and earlier take steps, stated Nordea Bank.
“A rate cut of at least 25 bp is almost certain, while a more dovish CBR is not our main case but is not something we would rule out completely”, added Nordea Bank.
