Russian ruble unlikely to weaken; interest rate developments likely to be roughly RUB-neutral, says Commerzbank

The Russian ruble is not expected to weaken despite a 25bp interest rate cut likely to be adopted by the Central Bank of Russia (CBR); however, interest rate developments in the country are likely to roughly RUB-neutral, according to the latest research report from Commerzbank.

Russian inflation fell back from 4.3 percent y/y to 4 percent in September, with prices falling by 0.2 percent m/m. The CBR has cut its 2019 inflation forecast in two significant steps already and now predicts 4-4.5 percent for year-end 2019 – this estimate will highly likely have to be revised lower again, especially if the recent decline in oil price is anything to go by.

The central bank’s last guidance on monetary policy has been that following the three rate cuts already implemented this year, the pace of rate cuts could now slow down. Because of this, many market commentators assume only one more 25bp cut in December.

"We, however, think that the combination of softer-than-expected inflation, and the more worrying news of downgrade to the fixed investment and GDP growth outlook (because of delays in infrastructure projects) means that the likelihood of a rate cut in October has increased. In fact, a 25bp cut is now our base-case," the report further commented.