Russia: CBR likely to cut rates by 25bps - TDS

In view of analysts at TDS, today’s CBR rate decision is a close call, but the good underlying inflation performance with the low core rate tips the balance, in their view, for a 25bps cut.

Key Quotes

“At the June Board meeting the policy rate was cut by 25bps to 9.0% with the press statement saying that the CBR sees room for cutting the key rate in H2. Although June CPI inflation moved up to 4.4% Y/Y from a prior 4.1%, this was almost entirely driven by food prices; core inflation fell to the historically low level of 3.5% in June. The ruble has shown some weakness since the June meeting, falling 3% against USD in spite of a rise in oil prices. This weakness is, at least in part, due to the prospect of increased US sanctions, which might make the CBR worry about further RUB weakness, although we think they will have limited impact.”

“Consumer inflation expectations still remain high (10.3% in June) and the CBR might be concerned that a very visible rise in food prices could temporarily stop or even reverse the downward trend in expectations. However, the good underlying inflation performance with the low core rate tips the balance, in our view, for a 25bps cut. The Bloomberg consensus is for no change, but with 13/35 respondents expecting, like us, a 25bps cut.”