The Russian central bank is likely to keep its key rate on hold today, noted Nordea Bank. But most of it will rely on if the Central Bank of Russia alters its baseline scenario for the oil market. At present, the central bank does not think that commodity market growth is sustainable and therefore is unable to enjoy the appreciation of ruble and the consequent reduction in inflation pressure, according to Nordea Bank.
In April, Russia’s inflation decelerated to 7.3% from 2015’s 12.9%. Moreover, the central bank might consider the reserve fund spending factor that includes the budget deficit, said Nordea Bank. Therefore the central bank sees softening of monetary conditions due to lowered structural liquidity deficit.
Meanwhile, a weak economy and decelerating inflation continue to be an important argument for reductions of rate. The Central Bank of Russia will have sufficient leeway to lower rates during its next meeting when it will be compelled to change its oil market forecast and consider lower inflationary risks, according to Nordea Bank.
If the policy is kept on hold today, money markets and currency might continue to be stable, noted Nordea Bank. If the rates are lowered, the ruble might retreat slightly; however, it will be for a brief period of time, said Nordea Bank.
