Russia: CBR to cut the Key Rate by 25bps to 7.25% - TDS

Analysts at TDS suggest that in line with the almost unanimous consensus they expect the CBR to cut the Key Rate by 25bps to 7.25% at today's Board meeting.

Key Quotes

“We think there is little doubt that the CBR will cut. Indeed, last week Igor Dmitriev, the head of the CBR's monetary policy department, said that the department would propose that the Board cut the Key Rate. CPI inflation continues to be subdued and running well below the 4% target - February CPI inflation was 2.2% Y/Y and core inflation 1.9% Y/Y. At the 9 February Board meeting the Key Rate was cut by 25bps with the CBR adopting a somewhat more dovish stance regarding short-term inflationary risks.”

“The CBR said that they will continue to reduce the Key Rate and "may complete the transition from moderately tight to neutral monetary policy in 2018". The CBR has previously stated that "neutral" monetary policy corresponds to a real policy rate in the 2-3% range, which, based on inflation being around the 4% target, implies a Key Rate of 6.0-7.0%. So the CBR would seem to have plenty of room to cut the Key Rate further this year - we are forecasting 6.75% by year-end. We think that there is some chance that the CBR cuts by 50bps today rather than 25bps, but with inflation expectations still high we think they will adopt a more cautious stance.”