The Central Bank of Russia is likely to cut its key rate by 50 basis points to 9.5 percent during its meeting on Friday, according to a Nordea Bank research report. In recent weeks, Russia’s inflation rate has continued to fall. The latest statistics show that the pace of inflation accounts for 5.7 percent versus 6.1 percent by the end of September. By the end of December, it is likely to hit a low at 5.5 percent, the lower band of the central bank’s target range in 2016.
The CBR analytics team, stated in their most recent research paper that the inflation rate is expected to definitely reach 4 percent by the end of 2017. This suggests that the Russian central bank has every possibility of beginning a rate cutting cycle, noted Nordea Bank. Historically, the Russian central bank has had lower appetite for lower rates during the times when the Russian ruble has been depreciating. Therefore, it is positive that the RUB has recently become an appreciation leader. This is positive in terms of a December rate cut.
For the first ten months of 2016, the Russian economic growth was -0.8 percent. The full-year figures might be close to -0.3 percent to 0.5 percent, which is the mid of the Central Bank of Russia’s target range. Hence the economic growth stays negative and even weaker than the CBR anticipated.
“We expect the RUB/USD to trade in the 60.5-62.0 range and RUB/EUR in the 64.0-65.5 range following the rate cut. The prime rates could decrease towards 9.5% during the coming months”, added Nordea Bank.
