The Central Bank of Russia is set to meet this week to announce its monetary policy decision. According to a Danske Bank research report, the central bank is expected to lower its interest rate by 25 basis points to 7.50 percent. Markets have been pricing in a more aggressive cut already. The Russian headline inflation has decelerated to its new post-Soviet lowest level of 2.2 percent in January. While a slight rise in the consumer price index is expected in 2018, anchoring around the CBR’s target of 4 percent appears firmer than in 2017, stated Danske Bank.
The CBR appears to have some room for a cut of 50 basis points as the real rate continues to be far above the acceptable corridor of 2.50 percent to 3 percent. The central bank’s reduction in rates is seen as RUB neutral or even positive: falling inflation is boosting demand for Russia’s local debt, OFZs; demand continues to be strong after the U.S. assessment; and rebounding economic prospects underpin local stocks.
“Despite lower carry appeal, we still see good opportunities for carry traders as we expect the real rate to hover around 3.0 percent in 2018, continuing strengthening of the RUB on stabilised oil price and improving macro fundamentals”, stated Danske Bank.
The Central Bank of Russia is expected to follow its monetary easing path, reaching 6.75 percent by the end of 2018 and 6 percent by the end of next year, added Danske Bank.
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