Commerzbank’s Tatha Ghose expects Russia’s central bank to keep its key rate at 14.25%, despite political and economic pressure for a cut. Surging inflation expectations, higher oil and commodity prices, and accelerating Consumer Price Index (CPI) data all argue against easing. Ghose sees the decision as having little impact on the managed USD/RUB and EUR/RUB exchange rates in the near term.
High Inflation Blocks Rate Cut Case
“Russia’s central bank (CBR) will announce its rate decision later today: the majority consensus now expects an unchanged key rate of 14.25%, although there is a healthy faction dissenting in favour of another ‘token’ 25bp rate cut.”
“We lean towards the majority view. A cut would be difficult to justify after the sudden deterioration of inflation expectations and the acceleration of oil and commodity prices, no matter how loud the economic and political pressure for lower interest rates has become.”
“The argument for a cut is not irrelevant. Activity is slowing, industrial output was up by only 0.6% y/y in June and 0.4% y/y in H1, public sentiment is deteriorating, small businesses are under pressure, and FinMin has suspended OFZ auctions indefinitely in order to reduce market stress.”
“President Vladimir Putin has also tried to present the slowdown as temporary, which indirectly keeps pressure on the CBR not to deepen it. Still, such pressures do not seem enough for a rate cut today.”
“We expect CBR to leave the key rate unchanged later today. This rate decision will not impact the artificial USD/RUB or EUR/RUB exchange rates noticeably.”
