CBR likely to adopt next rate cut in 2019; significant improvements in macro sentiment could trigger 25 bps cut in Q4 18: Danske Bank

The Central Bank of Russia (CBR) is expected to adopt its next rate cut by next year; however, significant improvements in global macroeconomic sentiments could trigger a 25 basis points rate cut by the fourth quarter of this year, according to the latest research report from Danske Bank.

The central bank has kept its benchmark interest rate on hold at 7.25 percent in its monetary policy meeting late last week, with expectations for the inflation to return to the 4 percent target this year, from the current level of 2.3 percent.

Further, the CBR remained positive on economic growth, stating that 'the FIFA World Cup made a positive contribution to the annual GDP growth rate in Q2 this year (0.1–0.2pps)'. However, the CBR does not look very much at economic indicators in making its monetary policy decisions. The price index remains 'the holy cow', the report added.

Lastly, the central bank refrained from viewing any pro-inflationary upside risks, owing to the disturbed geopolitical tensions, global monetary policy tightening ahead of the country’s fiscal decisions.

"We expect the CBR to stay on hold at its next monetary policy decision meeting on September 14, focusing again on the tone of the statement," the report commented.