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Tatiana Evdokimova, analyst at Nordea Markets, expects the CBR to keep the key rate unchanged on 26 April but to hint at the possibility of an earlier- than-expected return to easing, which will continue supporting demand for Russian assets and consequently the RUB.

Key Quotes

“The Central Bank of Russia (CBR) is to meet again on 26 April to make its key rate decision.  In its press release after the March meeting, the CBR admitted that it may return to an easing cycle in 2019 if conditions evolve in accordance with the forecast. 2019 is a very broad horizon, giving the CBR a lot of flexibility in terms of timing of the first cut.”

“At the upcoming meeting, the CBR is most likely to keep the key rate unchanged at 7.75%. However, external and internal developments since the meeting on 22 March are supportive of a shift to a slightly more dovish rhetoric.”

“Still another factor in favour of a cautious stance from the CBR for now is rapidly accelerating retail lending growth  (+23.6% y/y in March), which is worrying the regulator. Starting from April the CBR is applying higher risk coefficients to unsecured retail lending, forcing banks to set more capital aside for such loans. The CBR will probably need Q2 data to assess whether this measure is working before cutting the key rate.”

“We believe that the CBR is likely to soften its rhetoric hinting at a possibility of cutting its key rate earlier than in Q4 2019, which is our current baseline. This message will support demand for Russian sovereign bonds that are not yet fully pricing in the upcoming easing and consequently give further support to the RUB. The key prerequisite for this outlook to materialise is continued relative stability on the global financial markets as well as limited geopolitical pressure.”