RUB: CBR likely to signal rate cuts before end of year – Commerzbank

Russia’s central bank (CBR) will announce its rate decision today: analysts unanimously expect an unchanged key rate of 21.0%, which has been pre-signalled by policymakers. What will be interesting to observe, post-meeting, is to what extent governor Elvira Nabiullina is willing to appear dovish already, and confirm rate cuts for later in the year (which CBR surveys indicate that market participants forecasts widely anticipate), Commerzbank's FX analyst Volkmar Baur notes.

Inflation slows, eyes on Nabiullina’s tone

"Pro-inflation risks are easing finally: a stronger rouble exchange rate is helping in the disinflationary direction; CBR had anticipated SAAR inflation at c.8% for March 2025, but the outcome turned out to be a more dovish 7.1% (for comparison, inflation was running at 14.1% at the end of last year); latest weekly data show CPI increasing at 0.09% w/w for the week of April 15-21, which is not really a worrisome pace."

"On the real economy side, recent data on GDP, PMIs, retail sales and bank lending to corporates, all show noticeable moderation. CBR’s updated mid-term projections will most likely feature downward revisions to growth, inflation and average key rate forecasts, although we are not sure that CBR will be willing to make downward revisions to inflation and rate forecasts yet. That will depend on whether or not the bank has decided to show a more dovish face already. It may weigh on the minds of board members that last year’s rate pause (when the interest rate was at 16.0%) turned out to be premature and sparked an inflationary upswing, forcing rate hikes to re-start."

"On balance, we think that CBR’s key rate will likely stay unchanged at 21.0% another quarter at least. Subsequently, rate cuts will likely begin. This shift in monetary policy will not impact the artificial USD/RUB or EUR/RUB exchange rates noticeably. The rouble is strong at the moment because of some optimism that the war may be coming to an end and that some sanctions could be lifted as part of a peace deal. But, in our view, this is fragile ground and we forecast USD/RUB and EUR/RUB to drift gradually upward over the coming year."