Central bank of Russia to be on hold today

Consensus expectations are for rates to remain on hold at 11% during today's interest rate meeting. The Russian central bank (CBR) would like to cut rates, given that month on month CPI inflation trended lower recently. 

However RUB's decline towards levels last seen during the crisis period in late January complicates matters. A rate cut today would invite further speculation against RUB, which in an environment of deteriorating sentiment towards EM is hardly desirable. 

Not only is this an issue, but FX induced pass through inflation could rear its head once again. Interestingly, markets are now starting to price in a hiking cycle, but we think markets are overdoing it. 

"Russia, despite its numerous problems, boasts a healthy current account surplus, so it should not be affected in the same way as other emerging markets when the Fed normalizes rates in the coming months. Nonetheless, consistent oil price declines mean that USD-RUB remains a buy on dips for the moment", says Commerzbank.