Russia: Expect the CBR to cut its Key Rate by 50 bps to 10.0% - TDS

Research Team at TDS, expects the CBR to cut its Key Rate by 50 bps to 10.0% which is in line with the overwhelming consensus, with just 5/42 respondents to the Bloomberg survey expecting the CBR to keep rates on hold.

Key Quotes

“CPI inflation fell to 6.9% Y/Y in August from 7.2% in July, resuming a downward trend which had more or less stalled since March. Furthermore, USDRUB has been relatively stable for some time, trading in a band around the 65 level, so the ruble will not give the CBR any cause for concern. However, the CBR has been maintaining a very cautious stance, keeping its eyes firmly fixed on achieving the 4% inflation target by end-2017.  So we do not think today’s decision is quite as clear cut as the Bloomberg survey might suggest and that there is a chance that the CBR holds off cutting tomorrow and instead cuts at the October meeting.

Today S&P has a scheduled review of Russia’s rating, which is BB+ (negative), with Moody’s Ba1 (negative) and Fitch BBB- (negative).  Since the March S&P review, things have improved somewhat for Russia. Brent oil is up 12% and USDRUB is down 5%, and inflation is starting to fall again. Furthermore, there are some tentative signs that the Russian economy might be over the worst. EU and US sanctions remain in place against Russia, but there does not appear to be any near-term risk of them being extended.

The fact that the negative outlook has been in place for so long, since January 2015, argues for it being resolved one way or another soon. However, while developments since the March review would argue for the negative watch being removed, of all the agencies S&P seems the most sensitive to political risks, which are still very much present in Russia. So we think that S&P will maintain the Ba1 rating and the negative outlook, but with a significant chance that the outlook is moved to stable.”