Russia could cut benchmark interest rate by 50 bps to 7.5%


The Russian central bank is expected to cut its key interest rate by 50 basis points to 7.5% on Friday to encourage lending as inflation continues to slow, a Reuters poll suggested on Monday.

The bank has been gradually reversing an emergency rate hike to 20% in late February that followed Russia’s Feb. 24 move to send tens of thousands of troops into Ukraine and the imposition of increasingly wide-ranging Western sanctions in response.

Since then, the central bank made three 300 basis-point cuts in a row followed by a 150 bps reduction to 9.5% in June, before surprising analysts with another 150 bps cut to 8% at its last meeting, on July 22. At that meeting, the bank said it would study the need for more cuts.

Twenty of 23 analysts and economists polled by Reuters on Monday predicted that Russia would cut its benchmark rate by a further 50 bps (RUCBIR=ECI) on Friday.

“The fast slowdown in inflation and the need to support the structural transformation of the Russian economy in the face of sanctions plays in favour of further monetary policy easing,” said Mikhail Vasilyev, chief analyst at Sovcombank.

BCS Global Markets said a 50 basis-point cut was already largely embedded in bond and share prices.

“The regulator’s comments on future prospects are important,” BCS said. “It is likely that the central bank could take a pause in its monetary policy easing cycle in the future.”

Russia’s annual inflation slowed further in August to 14.3%, data showed last week, while consumer prices fell for a ninth straight week, thanks in part to a seasonal drop in fruit and vegetable prices.

Inflation is still far above the central bank’s 4% target, but down from 20-year highs seen soon after Moscow sent its troops into Ukraine.

Several analysts predicting a cut to 7.5% said that the move could even be deeper, to 7%. Only two forecast a 100 bps cut, and just one predicted a shallower cut to 7.75%.

SberCIB Investment Research, the investment arm of Russia’s largest lender, Sberbank (SBER.MM), said consumer prices falling faster than usual in recent months and likely continuing to do so in September meant the central bank could lower its key rate to 7%.

Andrei Kostin, CEO of no.2 lender VTB (VTBR.MM), last week said there was room for the central bank to cut its key rate to 7.5% and then 7% to stimulate lending in Russia’s banking sector.