March’s economic growth data improved, while headline CPI picked up in April. At the same time, Russia’s economic growth remains below potential, and CPI is, in our view, set to decline in coming months. Depending on the decision, the CBR will show whether it is more oriented towards past data or to the six-to-twelve month outlook.
We expect policymakers to act broadly this time by reducing all rates 25bp, citing weak growth and a favourable CPI outlook. However, the recent acceleration in headline CPI, coupled with the improvement of economic data, might raise concerns at the CBR and force it to postpone a cut in one-day repo rates until the summer. In this case, we might see only a 25bp cut in medium-term rates and possibly in the FX swap rate this time, and three consecutive 25bp cuts in a row in one-day repo rates during the summer, as we believe YoY headline CPI will then be in sharp decline.