The CBR unexpectedly lowered the key policy rate 200bp to 15% on Friday.
The regulator justified the rate cut from an orthodox forward-looking inflation-targeting standpoint, arguing that the FX pass-through is transitory while the cyclical slowdown will enforce a disinflationary impulse. The CBR also stressed that December’s emergency rate hike had already helped to stabilise inflation/devaluation expectations. While we could not agree more as concerns the fundamental assessment, and January did indeed see tentative signs of expectations stabilising, the risk is that markets might still want to test the latter (expectations) assumption. Therefore, although a dovish bias is now more apparent, the timing of further easing depends on how the markets react to Friday’s decision and the CBR’s readiness to stabilise expectations via non-interest-rate policy tools in case of renewed pressure on the currency.
For more details, please see our CBR Monetary Policy Decision – Starting to roll back emergency tightening, published this morning.