CBR preview: Easing space is still there – Nordea

Tatiana Evdokimova, analyst at Nordea Markets, suggests that together with the market, they are expecting the Bank of Russia to cut the key rate by 25bp on Friday.

Key Quotes

“Modest economic performance and moderate inflation pressure give hope for a continuation of the easing cycle in 2020.”

“External conditions have deteriorated significantly since the previous CBR key rate meeting on 26 July. Trade tensions between the US and China escalated sharply with a fresh round of tariffs with effect from 1 September and another wave promised by the middle of December.”

“The CBR has repeatedly mentioned external conditions as a potential source of risks. Even though the developments since the previous meeting have been worrisome, they still don’t outweigh internal circumstances that speak firmly in favour of a rate cut.”

“Another -25bp move will bring the key rate to 7%, its lowest level since early 2014. The move is widely expected by the market. The difference between the current 3-month Mosprime rate and a 3-month forward rate in 3 months’ time is currently 28bp, suggesting at least 1 cut priced in for the next 3 months.”

“The message from the CBR about its future monetary stance will be much more important to the market than the decision itself as it will signal to the market further moves from the CBR. The expected cut will bring the key rate to the upper bound of the neutral range of 6-7% repeatedly mentioned by the CBR. The neutral rate that neither accelerates nor slows economic growth is an unobserved indicator that is usually found by trial and error.”