Bank of Russia to continue cutting cycle, to begin rate cuts in Q3 2016

Bank of Russia has kept its key interest rate on hold at 11% since July 2015. But sharply deteriorating inflation is makes a continuation of the cutting cycle seems imminent. Data released last week showed that Feb inflation decelerated sharply to 8.1% y/y from 9.8% y/y previously. On a m/m basis inflation decelerated to 0.6% from 1.0% in January.

Recent RUB appreciation which is highly linked to global oil prices seems to have helped bring monthly inflation lower. Expectations are for the base effects to likely push headline inflation still lower in March.

However, guidance following the Jan meeting implied that the CBR was concerned about global inflation trends and was not ready to loosen monetary conditions in the near term. The CBR mentioned concerns that inflation will accelerate in Q2.

" We forecast the CBR beginning rate cuts in Q3 and cutting in 50bp increments for a cumulative 200bp of cuts" said Barclays in a report.