Schroders Quickview: Russia - one cut down, many more to come

Russia cuts interest rates but more reductions will be needed to support a return to economic growth.


Craig Botham

Craig Botham

Emerging Markets Economist

Russia has cut interest rates in line with expectations, taking the key rate from 11% to 10.5%. Speaking after the decision, central bank governor Elvira Nabiullina gave a fairly dovish statement, saying that the outlook for the economy was improving and more rate cuts would be considered with consumer inflation slowing. As a caveat, though, further cuts would be dependent on both lower CPI prints and lower inflation expectations.

Though the Russian economy recorded better-than-expected first quarter GDP, it is still contracting, and so a rate cut is welcome news. Both industry and the consumer have exited freefall but a recovery is still lacking. We do not expect the rate cut to revive household spending just yet, but easier monetary conditions should reduce headwinds for investment.

Though the governor’s statement could have been more dovish, we expect further rate cuts this year to take the policy rate to 9% by year end. A disinflation trend should take hold in July, particularly with currency risk much reduced on the back of firmer oil prices.