The Bank of Russia is set to meet tomorrow for its monetary policy decision. According to a Nordea Bank research report, the Bank of Russia is expected to cut the key rate by 25 basis points. Modest economic performance and moderate inflation pressure give hope for a continuation of the easing cycle in 2020.
External conditions have worsened since the previous central bank meeting in July. Trade tensions between the U.S. and China escalated sharply with a fresh round of tariffs with effect from 1 September and another wave promised by the mid of December. The U.S. Fed lowered the key rate for the first time since 2007, but so far its rhetoric proved to be less dovish than desired by the market. The markets reacted with a widespread risk-off mood where MSCI World dropped 3.5 percent, EM currencies lost on average 3.2 percent, oil prices fell 7.4 percent, and RUB eased 5.1 percent while safe-haven assets gained throughout the board, said Nordea Bank.
The Central Bank of Russia has repeated mentioned external conditions as a possible source of risks. Even if the developments since the previous meeting have been of some concern, they still do not outweigh internal circumstances that speak firmly in favour of a rate cut.
“Another -25bp move will bring the key rate to 7 percent, its lowest level since early 2014. The move is widely expected by the market. The difference between the current 3-month Mosprime rate and a 3-month forward rate in 3 months’ time is currently 28bp, suggesting at least 1 cut priced in for the next 3 months”, stated Nordea Bank.
