Russian central bank likely to continue pausing easing cycle

The Russian central bank is set to meet next week for its key rate decision. At this point, the outcome is quite uncertain. Still record-low inflation calls for a reduction in rate but there are more reasons for it to stay unchanged at 7.25 percent. Meanwhile, the CBR might resume its easing cycle soon. Still, the key rate is likely to fall to 6.75 percent by then end of this year, noted Nordea Bank in a research report.

The latest data for May indicated that the inflation accelerated to 8.6 percent after a historically low level of 7.8 percent in April. This reflects household’s reaction to the recent RUB weakening as well as rapidly rising gasoline prices. In the current easing cycle, which began in 2015, there has been just one case where the CBR cut its key rate despite rising inflation expectations at the same time as inflation was falling really rapidly. Inflation expectations are a crucial indicator in the inflation targeting framework and it is at the core of the CBR communication.

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