Russia’s central bank (CBR) has called an emergency meeting today. The continued appreciation pressure on the rouble has become somewhat of a problem for policymakers. However, although economists at Commerzbank expect the CBR to lower interest rates, the impact on the rouble is set to be limited. 

Few obstacles to bringing the interest rate down

“This rouble strength is more technical (rouble only driven by trade flows; within trade, imports have collapsed), than it is indicative of fundamental outlook (like a normal exchange rate would have been). For that, one would need the exchange rate to be fully convertible, and capital to flow freely – neither is the case.”

“FX-passthrough is no longer driving inflation higher. Inflation fundamentals in Russia are rapidly cooling off. This is why high-interest rates may not be required. High-interest rates are also not required to defend the currency because the rouble is protected by comprehensive capital controls.”

“There are few obstacles to bringing the interest rate down to lower levels and support an economy which is contracting by c.8%-10%. Exactly by how much CBR will lower the rate today is besides the point – a reduction from 14% to 9% or 10% would not surprise us – we anticipate no significant impact on the FX market.”

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