The Central Bank of Russia will decide about its key rate today. There is a significant likelihood that the central bank lower its key rate to 8.5%. In July, the CBR decided to remain on hold, markets expectations for a rate cut are now strong.
There are a major reason for that, it has been a while that Russian inflation is on its way lower. Consumer prices have increased 1.7% year-to-date. Annualized figure is 3.3% below the central bank expectations. The central bank has now some room to act to normalize its monetary policy.
Currency-wise, the ruble is trading at the highest levels for the last two years against the dollar at 52 ruble for one single dollar note. It is important to remember that before 2013, the USDRUB was trading around 30. We consider that the CBR is willing to strengthen the currency by lowering its key rate. Today’s event should not appear as a non-event but as a remainder of benefiting from the likely strengthening of the Russian currency over the medium-term.
By Yann Quelenn