• Central Bank of Russia likely to cut rates by 25 bps in October and December

    Source: FxWire Pro - Commentary / 11 Oct 2019 09:36:21   America/New_York

    Central Bank of Russia’s Governor Elvira Nabiullina recently spoke at a conference. She underlined downside risks to inflation and the additional room available for the central bank to further lower rates faster. The CBR’s next monetary policy meeting is scheduled for 25 October. According to a Commerzbank research report, the Russian central bank is expected to further cut its interest rate by 25 basis points in October and also in December.

    The previous policy guidance of CBR had been that following three rate cuts already in 2019, the pace of rate cuts could now slow down. Therefore, several market commentators assume only one more cut of 25 basis points in December.

    “We, however, think that the combination of softer-than-expected inflation, and the more worrying news of downgrade to the fixed investment and GDP growth outlook (because of delays in infrastructure projects) means that the likelihood of a rate cut in October has increased”, stated Commerzbank.

    Russian headline inflation eased to 4 percent in September from 4.3 percent year-on-year. The Central Bank of Russia has lowered its 2019 inflation forecast in two significant steps already and now predicts 4 percent to 4.5 percent for year-end 2019.

    “A 25bp rate cut would not weaken the ruble in our view because CBR is only adjusting to the inflation trend, not lowering the real interest rate”, added Commerzbank.

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