Most analysts expect CBR to lower rate by 50 points, but some see 25-point cut
MOSCOW. June 18 (Interfax) - The Central Bank of Russia (CBR) will lower its key interest rate by another 50 basis points to 14.0% on Friday, most analysts expect, though some forecast a more modest cut of 25 points to 14.25%.
The CBR cut the rate by 50 points for the fifth consecutive time in April, to 14.5%, noting that it would assess the advisability of further cuts at upcoming meetings depending on the sustainability of the slowdown of inflation, the dynamic of inflation expectations and a review of risks from external and internal conditions.
"This in no way means the inevitability of rate cuts at each of [the upcoming meetings]," CBR deputy governor Alexei Zabotkin said at the beginning of June, reiterating the signal given in April. The room for easing monetary policy has not increased, he said.
Asked about the possibility of a 25-point rate cut, Zabotkin recalled a statement from a recent press conference on the rate: "If such an alternative is proposed by participants in the discussion, it will be substantively discussed." The last time the rate was lowered by such an increment was six years ago, in the summer of 2020.
"As for possible increments, you know we don't comment on them. Depending on the situation, larger increments [than 50 points] are even possible, but pauses are also possible within the context of the baseline scenario, among other things, so everything will depend on the data that come in," Central Bank chief Elvira Nabiullina said in February. Zabotkin added at the time that he would also not rule out a 25-point cut if there were grounds for it.
In light of the low inflation in April-May, the decline of businesses' inflation expectations, the strong ruble and the slow growth of economic activity, the CBR will again lower the rate by 50 points on Friday, SberCIB Investment Research analysts forecast. The CBR will accompany this decision with cautious commentary due to the continued predominance of pro-inflationary risks, they reckon.
"They are primarily related to the crisis in the Middle East and the continued substantial budget stimulus. The CBR might also note signs of revival of economic growth in April-May and the fact that the slowdown of inflation was due primarily to temporary and one-off factors," the analysts said.
Economists at state bank VTB also think the CBR will cut the rate by 50 points, while possibly toughening its rhetoric.
"The Bank of Russia will continue the cautious and steady reduction of the key rate. Current rates of inflation in April and May turned out to be lower than targets, including in persistent components. An additional factor is the strong ruble, which also reflects the tightness of monetary policy. At the same time the regulator will still have to factor in the acceleration of lending and the money supply, as well as persistently high inflation expectations," the VTB experts said.
"Given the slowdown of price growth and the 14% drop in investment in real terms in the first quarter, one could have expected an even more substantial reduction of the key rate [by 100 points to 13.5%], but the unfolding pro-inflationary balance of risks and the Bank of Russia's current approach to factoring them in makes a more cautious decision [a 50-point rate cut] more likely," Russian Agricultural Bank (RusAg) analysts said.
Ingosstrakh Investments analysts believe the CBR will continue to take a conservative approach, despite calls for more aggressive rate cuts. "The most likely scenario for us in this situation is a decision to lower the key rate by 50 or 25 bp and, what's possibly even more important, a shift in signal from soft to neutral. It is the signal and rhetoric that will show the CBR's vision and determine the movement of, foremost, the debt market in the near future," they said.
Alfa Bank economists, meanwhile, said a number of factors point to a more cautious increment of 25 points. Despite the slowdown of inflation in April-May, price growth in recent weeks has been worse than expected, and the effect of one-off factors could continue and spur the growth of persistent components, they said. They also pointed to the pro-inflationary influence of demand in terms of the growth of retail sales, the acceleration of lending growth, the increase in the amount of cash in circulation and the growth of budget spending.
"The persistently strong ruble exchange rate at the moment looks like an important disinflationary factor, but the increase of inflationary risks in the global economy should turn the forex market around in future," the Alfa Bank experts said.
