CBR Preview: A rate cut of 25 bp seems to be appropriate – Nordea

Today, the Central Bank of Russia (CBR) has its key rate meeting at 10:30. Economists at Nordea expect the CBR to cut the key rate by 25 bp and send a slightly dovish signal. Nevertheless, a rate cut of 50 bp would not be a surprise. 

Key quotes

“We expect the CBR to cut the key rate by 25 bp next Friday and send a slightly dovish signal about the possibility of another rate cut in September. However, we would not be surprised to see a rate cut of 50 bp as well. Finally, it seems that the easing cycle is close to its end in Russia and, thus, the key rate may very well end 2020 at levels of 4-4.25%.”

“We believe corona repercussions will continue to weigh on internal demand in Russia and revise down our forecast on private consumption decline from previous -3.5% y/y to -4.8% y/y for the full year of 2020. As a result, the GDP in Russia will decrease by around 5.0%, according to our estimates. The CBR will probably also lower its own private consumption forecast (currently a drop of 1.6-3.6%) at the upcoming meeting.”

“We expect disinflationary risks to prevail till the end of 2020 amid depressed internal and external demand. As a result, inflation will likely be lower than 4% at the end of this year.”