Russia: Rate cuts are coming from CBR – Nordea

Nordea Markets analysts suggest that yesterday’s comments from the governor of the Central Bank of Russia (CBR) have decisively convinced the market and them that the regulator will cut rates at both meetings left till the end of the year bringing the key rate to 6,5% by year end.

Key Quotes

“We adjust our previous more hawkish view with no cuts till the end of the year accordingly.”

Inflation in Russia remains surprisingly low. Seasonally adjusted month-on-month inflation figures (3 month moving average) stood around 0.2% throughout Q3. When annualized that actually gives inflation below 3%, which is becoming a significant deviation from the 4% target. In addition to low underlying inflation trend, data received after CBR September meeting confirmed that the harvest was good. That has decreased inflationary risks even further.”

“The CBR is likely to soon come up with a revised estimate of a neutral rate in Russia with the lower bound of the range likely pushed closer to 5%. The easing in Russia is set to continue throughout the end of 2019 and the first half of 2020. As a result, we expect two rate cuts from the CBR in October and December 2019 (both at -25 bp) and two another cuts in 2020, which will bring the key rate in Russia to 6% by the end of 2020.”

The single though not negligible factor capable of halting the easing cycle in Russia is a substantial deterioration of global growth prospects with repercussions for risky assets including emerging market currencies and oil price. RUB weakness in this scenario and the subsequent inflationary risks will be able to make the CBR take a pause in the easing cycle.”

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