​Russia’s pandemic update: CBR hints rate may be cut next week

RUSSIA ECONOMICS - In Brief 17 Apr 2020 by Alexander Kudrin

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Today, the CBR Chairperson Mrs. Nabiulina made several statements during her press-conference, which seem to be supportive for the ruble bond market. In particular, she mentioned that the base case scenario for the next Board of Directors meeting would be a potential key rate cut, and the size of this cut would to be discussed as well. In the current environment 50 bp cut looks very likely.Most likely however, the decision is not 100% predetermined and it will be carefully considered before the Board meeting as on Wednesday, April 22, Rosstat will publish next in turn w-o-w inflation data. In theory the CBR may stay on hold if inflation suddenly jumps next week, but currently it seems unlikely. If inflation next week is reported within the limits of 0.2-0.3%, i.e. be the same as in previous weeks (or it can be even slightly higher), then there will be reasons not to deliver the 50 bp step. Cutting 25 bp won’t mean much for the economy, while 50 bp will provide quite a meaningful support.It should be also kept in mind that in the case of unlikely delay in cutting the key rate next week, the Board of Directors can hold meetings off-plan any time and deliver rate cuts later (if needed).The OFZ market already reacted to these messages from the CBT by rallying. Prices in the long end of the curve went up by 4 p.p. and reached a level, which was last observed in the beginning of March (6.5% in terms of yield for bond with maturity in 2039).Rate cut cycle may help the Finance Ministry to execute its borrowing program. Last Wednesday it managed to place bonds worth to almost R100 bn, which is around 16% the quarterly plan. Given a large scale of the fiscal stimulus (which keep...