Tatiana Evdokimova, analyst at Nordea Markets, expects the Central Bank of Russia to cut the key rate from 7.75% to 7.5% on 14 June and suggests that he RUB reaction to the event will likely be muted.
Key Quotes
“The two options to be considered by the regulator include keeping the rate on hold or cutting it by 25bp. At the April meeting the CBR opened the door for a rate cut already in Q2 and we believe that the developments since then warrant a return to an easing cycle.”
“The meeting will be followed by the press conference with the governor and by the publication of forecast updates. The regulator will very likely revise its inflation forecast downward from the current 4.7-5.2% to 4.2-4.7%. An interesting point is whether the CBR is going to revise the GDP numbers after a very weak Q1 date that indicated growth of just 0.5%.”
“The key intrigue of the meeting is probably the signal regarding the future policy path. The latest comments from the regulator representatives suggest that the next steps will be very cautious with a very gradual easing. For now one more cut in 2019 apart from the cut in June seems warranted. The external environment is the key factor capable of halting the easing cycle. If rising worries about global economic slowdown, shaky oil outlook and potential risk aversion on the global markets result in more RUB weakness on the year-end horizon, it may postpone cuts in the second half of the year.”
“The market reaction to the projected key rate cut will likely be muted as the decision is widely expected. The previous 6 key rate cuts in 2016-2017 didn’t not generate any pronounced reaction in the RUB. The currency moved by around 0.1% in reaction to the announcement. The dynamics on the OFZ market will mostly be determined by the message sent by the regulator with regard to further key rate moves. A hint at further easing in 2019 may cause a mild decline in the yields.”
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