Most analysts expect CBR to cut key rate to 15% on Fri

MOSCOW. April 29 (Interfax) - The board of directors of the Central Bank of Russia (CBR) will consider monetary policy, including the key interest rate, at its meeting on Friday.

Most analysts expect the CBR to lower the key rate by 200 basis points to 15% on Friday, and some do not rule out a deeper cut to 13-14% given the strengthening of the ruble.

Financial market participants generally agree. Of the 31 respondents who participated in an ACI Russia survey, 68% expect a 200 point reduction to 15%; 29% expect a 300 point cut to 14%; and 3% anticipate a 100 point decrease to 16%.

The CBR slashed the key rate by 300 bp to the current 17% on April 8 without waiting for the regular board meeting. The CBR more than doubled the rate from 9.5% to 20% on February 28 in response to increased depreciation and inflation risks, and kept it at this level in March.

Ahead of the April 29 meeting, the CBR reiterated is signal for the future direction of monetary policy, that it would consider the possibility of further lowering the key rate at its next meetings. Central Bank chief Elvira Nabiullina said last week that the CBR will assess the development of the situation at its next board meeting on monetary policy, and stressed that the CBR is aware of the need to ensure affordability of resources.

"Our next meeting is in a week. We will see how the situation develops, but we understand that affordable rates are needed, including for lending to the economy, so that the economy can adapt to the new conditions," Nabiullina said.

Inflation in Russia slowed to 0.25% in the week from April 9 to 15 from 0.66% in the week from April 2 to 8, 0.99% from March 26 to April 1, 1.16% from March 19 to 25, 1.93% from March 12 to 18, 2.09% from March 5 to 11, 2.22% from February 26 to March 4, and 0.45% from February 19 to 25, data from the Federal Statistics Service (Rosstat) show.

Annual inflation as of April 22 was up slightly at 17.6-17.7% from 17.6% on April 15 and 17.5% on April 8, after jumping to 16.69% by the end of March from 9.15% at the end of February, 8.73% at the end of January and 8.39% at the end of December.

Consumers' inflation expectations decreased significantly in April after hitting a multi-year high in March, and returned to where they were in August-September 2021, the CBR said earlier. Businesses' short-term price expectations also decreased in April, but still remain near the highest level on record, the CBR said.

"We expect the reduction of the key rate by 2 percentage points to 15% at the April 29 meeting," SberCIB Investment Research senior debt market strategist Igor Rapokhin said last Friday. However, on Wednesday he did not rule out a bigger cut.

"Our baseline forecast assumes the key rate will be lowered by 2 ppt, but a reduction of 3 ppt is also possible. In addition, the CBR is publishing new macroeconomic forecasts (the previous ones came out in February) that will probably show that it intends to further ease monetary policy in response to the unprecedented decrease in supply," Rapokhin said in a report.

Alfa Bank economists also earlier forecast that the CBR would lower the key rate to 15%. "We expected a rate cut to 15%, but in light of the strengthening of the ruble and decrease in OFZ [bond] yields, I think that the option of a reduction to 13% can't be ruled out. Particularly since this will make it possible to more quickly restore lending," Alfa Bank chief economist Natalia Orlova told Interfax.

Gazprombank's baseline forecast also assumes a rate cut to 15%. "However, given the dramatic improvement of almost all monetary indicators, the Bank of Russia might have the prerequisites for a sharper reduction," the bank's analysts said in a report.

Raiffeisen Bank economists also expect the CBR to lower the rate to 15% on Friday. "A less pronounced move, in our view, would not seem logical after the unscheduled rate cut by a whole 300 bp, while more significant easing could be excessive, since uncertainty regarding the further development of the situation is still high," the bank's analysts said in a report.

Renaissance Capital analysts also forecast a rate cut to 15% on Friday.

After Friday's meeting, in addition to a press release on its interest rate decision, the CBR will also publish a medium-term macroeconomic forecast and its governor will hold a press conference. The report on monetary policy will be published in May 11.