The Central Bank of Russia surprisingly lowered its key interest rate today by 50 basis points. This was a real test of the central bank’s independence as there has been major pressure from authorities in Russia pushing for a weaker RUB. The Russian government is likely searching for market-based tools to steady the Russian ruble. With a free-floating Russian ruble and only the inflation targeting policy in place, there have not been a lot of options left.

The FX market has already digested a 25 basis point cut quite easily, without any considerable effect on the RUB. A more aggressive easing pace might result in a marked weakening of the RUB, noted Nordea Bank. Just after the CBR’s decision to cut rate, the RUB weakened slightly; however, it gained back the losses.

The latest consumer price inflation figures, great uncertainty regarding the oil price forecast and household consumption growth might have prevented the Russian central bank from lower the interest rates by 50 bps. However, this was not enough. Meanwhile, the central bank confirmed “moderately tight monetary policy sustained” in its information notice.

“Today’s move leads us closer to the end-year forecast for the key rate of 8 percent”, added Nordea Bank.