CBR’s recent rate cut largely looks like a mistake

Falling oil continues keeping RUB under pressure and even the monetary policy doesn't help.

Last week's CBR decision to cut the key rate by 50bp to 11.0% clearly added to the vulnerability of the RUB and looks increasingly like a mistake. However, there does not appear to be overshooting yet and, if oil price and the RUB appreciate from here, the impact on inflation will be moderate. 

"The CBR is expected to deliver another 100bp in rate cuts the next three months, compared with current market pricing of about 64bp. That being said, if oil prices remain at low levels, we believe there is greater scope for the RUB to depreciate from current levels", says Barclays. 

The CBR may attempt to smooth these FX moves and avoid overshooting by tightening monetary conditions, either by offering more in FX swaps or decreasing liquidity in its RUB auctions.