Russian rouble: Persistent inflation risks make a policy pause likely – Commerzbank

A hold at 14.0% is the consensus expectation for the Russian central bank’s key rate, a view shared by Commerzbank’s Tatha Ghose. In his assessment, inflation trends and fiscal risks warrant a pause, while CBR could raise its medium-term rate forecast for 2027. Although the rouble has begun to strengthen modestly, its limited connection to trade fundamentals leaves the outlook uncertain.

CBR expected to keep rates at 14 percent

"The Russian central bank (CBR) will announce its key rate decision later today: market consensus almost unanimously forecasts an unchanged rate of 14.0%, and we agree."

"Inflation remains the clearest argument for a pause. Month-on-month inflation slowed to 6.5% (seasonally-adjusted, annualised) in September from 7.5% in August, but the three-month average is still 8%. October’s unusually late and larger utility tariff increase has already pushed annual inflation faster than 7%. "

"Weak activity provides some argument for lower rates: GDP growth reached only 0.8%y/y in August, industrial output contracted by 0.6%y/y and manufacturing PMI remained in contractionary territory. But government-supported sectors and subsidised lending are less sensitive to interest rates, while corporate lending remains elevated. Meanwhile, CBR did cut rates in past quarters precisely to provide some support."

"Inflation fundamentals do not particularly support renewed easing, while the main focus will be CBR’s revised medium-term projections and guidance regarding future policy. CBR currently forecasts an average key rate of 10.5%-12.5% in 2027, but this range could be revised up, probably by even 1pp."

"The ruble is mildly appreciating at last, after several months of remaining weak despite high Urals price realisation an improving Russian trade surplus. Given the exchange rate’s weak link to trade fundamentals, however, this trend may or may not extend over the coming month."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)