The Central Bank of Russia is likely to hold its key interest rate at 11% on Friday during its monetary policy meeting according to Danske Bank. With the appreciating ruble and constant drop in RUB volatility, the central bank is expected to keep a softer tone during the meeting as inflation has slowed down. However, the high base effect will decline in near future that supports the cautious stance of CBR, noted Danske Bank.
Meanwhile, the continued rise in oil prices gives leeway for proper guidance from CBR regarding the forthcoming monetary easing. In the past 30 days, the Russian ruble has appreciated on average by 3.9% against EUR and 5.7% against the US dollar. Even though the market expects the Russian central bank to lower rates sometime in 2016, it is unlikely to take any action on Friday, said Danske Bank. The CBR, during its previous meeting in March stated that it might moderately tighten its policy for a longer period of time than expected earlier.
The lower oil price is weighing on CBR’s inflation expectations. According to the central bank, oil price will average USD 30/bl this year and rise slowly to USD 40/bl in 2018. The comments of Governor Elvira Nabiullina in April confirmed the hawkish stance of CBR. She repeated the significant of the annual inflation target of 4%. Nabiullina said CPI of 6%-7% indicates high rates, volatility and risk premium.
“We believe a 50bp key rate cut is possible in early Q3 16. Otherwise, we believe any oil price weakening and deterioration of global risk sentiment would shift the cut into Q4 16. We still see the key rate falling to 9.5% by the end of 2016”, added Danske Bank.
The material has been provided by InstaForex Company – www.instaforex.com