Russian central bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia March 24. Photo: Reuters, Maxim Shemetov

Despite analyst expectations that the Russian central bank (CBR) would hold steady, the bank cut the key rate by 25bps to 9.5%.

Goldman Sachs writes in a note Friday that, in line with their expectations of further cuts in the coming quarters, this will be the start of a cutting cycle that will pick up speed as inflation falls below the target in the second half of the year. GS maintains their forecast of another 200bps of cuts this year.

Other key points from the Goldman Sachs’ research note:

  • The Ruble will remain well supported, as real interest rates are at best stabilizing at very high levels, given the slow speed of the cutting cycle.
  • The key rate is now 9.75%, down from 10%.
  • The lending rate was cut to 10.75% from 11%. The borrowing rate was cut to o8.75% from 9%.
  • The CBR acknowledged the possibility of cutting the key rate gradually in Q2 and Q3.
  • Domestic inflation pressures are benign. Inflation has fallen to 4.3% year on year, as of March 20, and sequential inflation is well below the target.
  • Disinflationary drag from domestic demand continues, and household savings rates remain high.
  • CBR maintains a base case scenario of US$40/bbl for oil, with an assessment that the current policy position will allow a fall to 4% inflation by the years end.