Central Bank of Russia may go for rate cut

The recovery of the ruble ran out of stem intraday yesterday, as a result USD-RUB is once again aiming for the 60 mark. Today attention is focussing on the central bank's rate decision. The majority of analysts expect a 50bp rate cut to then 11%, some even expect 100bp. On the other hand there are also some analysts who do not expect a cut at all. The likelihood of the latter group being right has risen over the past few weeks as rate cuts really are not a tool for strengthening a central bank's own currency. 

However, this week the central bank had already stopped its FX purchases to counteract the ruble weakness. Low interest rates would no doubt benefit the Russian economy - which is in deep recession. A glance at inflation illustrates that this provides no reason to leave rates unchanged. The rate of inflation runs at more than 15% at present, but that is merely due to price rises at the end of last year/beginning of this year. During the last quarter price rises were very moderate. 

According to Commerzbank, economists refer to the underlying price trend and the latter is no doubt going to please central bankers at present. "Therefore a rate cut is expected. As the majority expect a cut any ruble weakness should be limited. Nonetheless USD-RUB is likely to move away from the 60 mark quite quickly again."