Russia’s central bank likely to keep interest rate unchanged

The upcoming meeting of the Bank of Russia might see holding key interest rate. The topics that will be closely watched are the outlook of the interest rate and the scenario the central bank will use to measure its monetary stance. The central bank is expected to warily downgrade its outlook. Frontier outcomes such as abandon easing or threats to tighten policy are not expected.

The central bank in Q4 2015 was dealing with the core scenario of oil price flat at $50/bbl and the high-risk scenario of oil price flat at $35/bbl. Ignoring the technical difference between the Urals and Brent prices, the present stance is very close to the 'high-risk' outlook which might compel the central bank to change its core assumptions.

According to Societe Generale analysts, there is a high possibility of Brent price rebounding to $50/bbl by the end of 2016 from $35/bbl in Q1 2016. Furthermore Brent is likely to increase to $75/bbl by 2020.

"Based on this upward-sloping trajectory for oil prices, we implicitly assume a cyclical recession will dominate in the current loop of the slowdown", says Societe Generale.

Meanwhile, the central bank is expected to confirm economy's structural problem and their control over cyclical forces, particularly if it modifies its basic oil assumptions on the downside. If this happens the implied trajectory for the interest rate will be much flatter, at least on a one-year horizon.