• Central Bank of Russia likely to continue with moderate interest rate cuts – Danske bank

    Source: FxWire Pro - Commentary / 27 Dec 2017 11:49:55   America/New_York

    The Russian central bank, Central Bank of Russia, had lowered its key interest rate in December by a surprising 50 basis point to 7.75 percent, as compared with consensus expectations of a 25 basis point reduction. According to a Danske Bank research report, the central bank is expected to continue with its moderate cuts, bringing the key rate to 6.75 percent by the end of next year, keeping real rates highly elevated.

    The nation’s inflation slowed further below the central bank’s 4 percent year-on-year target, recording 2.5 percent year-on-year in November, which is an all post-Soviet time low. Yet, the central bank intends to anchor long-term CPI around 4 percent year-on-year, which explains the CBR’s objective in a better manner.

    “We remain bullish on the RUB in the long term, as high rate differentials prevail and the domestic story supports the currency”, stated Danske Bank.

    Short-and medium-term prospects are foggier, but as external factors such as the oil price and geopolitics put notable pressure on the RUB. Possible introduction of the new anti-Russia sanctions by the U.S. by the end of January 2018 is serious short-to medium-term risk for the Russian ruble, Russian stocks and government debt.

    “Worsening sentiment could pause foreign direct investment flows and accelerate inflation. Upside risks come from an increasing oil price and improving relations with the West”, added Danske Bank.

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