Head of Macro Analysis
Summary: At 1030GMT on Friday, the Central Bank of Russia (CBR) is expected to announce its latest monetary policy decision. It will be followed by an online press conference with the governor Elvira Nabiullina. There is an overwhelming consensus among economists and analysts that the central bank will announce a 25/50 bps cut and indicate that the rate cutting cycle is over soon. We think that the central bank should refrain for the moment from cutting rates further, as a new rate cut would not be really macro-significant after the extraordinary 100 bps cut. Instead, it should focus on key rate guidance, which would be as efficient as another 25 bps cut, and let the door open to further action in H2 this year if the second wave of the virus, characterized by business restructuring, permanent closures and gloomy consumption, hits hard Russia.
The money market has interpreted recent comments from central bank governor Elvira Nabiullina (indicating that she fells that there is room for lower rates) and deputy governor Alexei Zabotkin (confirming that the CBR will consider another rate cut this week) as strong signals that the key rate, which was at 6.25% at the start of the year, is likely to be cut at 4.50-4.25% on Friday.
In our view, there are strong arguments against cutting rate further in July:
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