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While the Bank of Russia (CBR) left the door open to more easing, the latest comments from Governor Nabiullina imply that a cautious approach will once again prevail and the key rate will remain on hold at 4.25% on December 18. 

Regarding the ruble, A new set of sanctions is the main source of risk in 2021 but economists at Rabobank expect the USD/RUB pair move back to 60.8833 in the next year.

Key quotes

“The sharp acceleration in inflation above the official 4% target to 4.4% YoY in November has limited room for manoeuvre for the CBR. The 5.8% YoY spike in food prices was the main culprit. Many households started stockpiling. A weaker ruble also contributed to inflationary pressure as prices of non-food goods accelerated to 4.5% YoY. The temporary nature of those factors means that inflation should ease next year. That said, Governor Nabiullina seems to be in favour of properly assessing the impact of those factors on inflation expectations before considering another rate cut, which could be the last in this easing cycle. Therefore, the most likely outcome of the December 18 meeting is an unchanged policy rate at 4.25%.”

“The ruble could be the main incentive to trim rates further next year. To maximise benefits of a gradual recovery in global demand for Russian oil and gas, the CBR may narrow the interest rate differentials to preserve the competitiveness of Russian exports by preventing the ruble from appreciating excessively.”  

“President-elect Biden is widely expected to adopt a much stronger stance on Russia than his predecessor Trump. Washington will continue exerting pressure on European partners – mainly Germany – to terminate the Nord Stream 2 project. That said, at the very beginning of his presidency Biden may refrain from confronting Putin and may first build a wider coalition with Western allies before challenging Russia.”

“The risk of sanctions is well known to market participants and should not prevent the ruble from appreciating over the 12-months, although brief periods of weakness can be expected due to changes in global sentiment. We expect USD/RUB to drift towards the pre-coronavirus pandemic low at 60.8833 in 2021.”