CBR’s easing cycle is not over – Danske Bank

Analyst Mathias Mogensen at Danske Bank sees the Russian central bank easing further in the next months.

Key Quotes

“Surprisingly, the Russian central bank (CBR) cut its key rate by 50bp to 9.25% on 28 April, while consensus expected a 25bp cut as did we. Yet, in our preview prior to the decision, we did not exclude a 50bp cut to restrain the RUB’s excessive strengthening”.

“While inflation is getting closer to the target (4% y/y by end-2017) and inflation expectations are decreasing, in its newest statement the CBR pointed out that ‘at the same time, inflation risks remain in place’.

“We see that the current aggressive cut was fuelled by concerns of economic authorities that the RUB has become overvalued given the crude price levels. Given the CBR’s dovish tone and the fact that its ‘assessment of the overall potential of the key rate reduction before the end of 2017 is unchanged’, we reduce our key rate projection for end-2017 to 8.00% from 8.50% previously”.

“More aggressive monetary easing on the rising crude price and RUB’s excessive appreciation would encourage fixed investment expansion and private consumers supporting economic growth. After the decision, the RUB weakened temporarily, restarting an even stronger rally on increasing demand in RUB bonds”.