Head of Macroeconomic Research
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:
Central Bank Dashboard:
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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