CBR likely to cut rate

Uncertainty over the optimal interest rate policy has increased in the run-up to the March meeting (13 March) of the CBR Board of Directors, which will be devoted to reaching a decision on whether or not to cut the key rate.
 
The opinions of market participants (shortterm RFLB bonds are pricing a cut up to 200-300 bps) and experts are significantly divided. 

On the one hand, the geopolitical and internal economic backdrop provide firm arguments for further bringing down the key rate to more comfortable levels, while on the other, the inflation trajectory and related regulatory risks would support adoption of a more cautious hawkish approach.

Societe Generale notes in a report on Tuesday:

• Although our analysis of the key rate 'normalisation' trajectory recognises the need to apply intensive inflation targeting, we have pulled forward our expectation for a key rate reduction from 15% to 13.0% to Q2 15, from Q4 15. 
  
  
• Lowering interest rates ahead of a deceleration in inflation might seem to be a sub-optimal strategy but we believe that, should the key rate be kept flat for too long, the monetary stance could come under significant pressure and bar the way to a recovery from recession. 
  
  
• At present, we believe an additional accommodation of 200bp to 11.0% might follow in H2 15.