RUB: Not really dovish – Commerzbank

Russia’s central bank (CBR) left its key rate unchanged on Friday as had been unanimously expected. There was supposed to be a more pronounced shift of language towards dovish – and indeed, some commentators interpreted the language as dovish because a key sentence on the possibility of a rate hike in coming meetings was dropped, Commerzbank's FX analyst Tatha Ghose notes.

Rouble strength seen as temporary amid peace hopes

"But, we do not view the updated language as more dovish at all: the updated projection of the key rate still retains a scenario where a rate hike occurs before the end of the year. In fact, no macroeconomic variable was revised significantly in the dovish direction. The forecast revision for the key rate does not qualify – for this variable, the forecast range was narrowed down symmetrically from both ends, which automatically means that the upper end was reduced slightly, but this does not count as a more dovish forecast. GDP and CPI projections were left unchanged."

"At the same time, we do not interpret these signals to be hawkish either. Rather we stick with our impression from before the rate decision – that governor Elvira Nabiullina may still be concerned that inflation would re-accelerate if she were to signal looser policy in coming quarters. The CBR board remembers that they paused rate hikes last year and that turned out to be premature, which sparked an inflationary upswing, later forcing rate hikes to re-start. This may be the only reason CBR is not ready to put up a dovish face yet."

"Our base-case is that CBR would keep the key rate unchanged at 21.0% for another quarter at least. Subsequently, rate cuts could begin. This shift in monetary policy will not impact the USD/RUB or EUR/RUB exchange rates much. The rouble is strong at the moment because of optimism that the war may come to an end and that some sanctions could be lifted as part of a peace deal. But, we are not very optimistic and forecast USD-RUB and EUR-RUB to drift gradually up over the coming year."