The Central Bank of Russia continued its rate-cutting cycle and reduced its main policy rate by 150bp from 14% to 12.5%. Three fundamental reasons drove this decision: first, while inflation accelerated to 16.9% y/y in March, weekly inflation readings point to stabilisation in April and a likely slowdown afterwards. Second, the RUB has appreciated by 24.4% vs. USD since end-January (by 25.5% vs the basket), which is one of the key reasons behind the expected inflation stabilisation. Third, weakening domestic demand has started to exert notable downward pressure on inflation as well. Overall, the stabilisation of inflation and the sizeable YTD appreciation of the ruble still gives the central bank further scope to continue its rate-cutting cycle to support the plunging economy as the Ukraine conflict and economic sanctions continue to exert significant downward pressure on the Russian economy.
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