The Russian central bank (CBR) meets today for its rate decision: the consensus had originally been split between a 100bp and a 200bp rate cut scenario – but, with more economic weakness and softening of inflation reported, more views have shifted towards the 200bp (down to 16%) option and bets have arisen also for the 250bp cut option, Commerzbank's FX analyst Tatha Ghose notes.

USD/RUB and EUR/RUB exchange rates to continue to rise

"Headline CPI slowed to 8.3%y/y in August, below the CBR’s earlier Q3 forecast of 8.5%. Disinflation has become noticeable earlier than had been expected, while bank lending growth has decelerated sharply – with corporate credit expanding at the weakest pace in two years and household borrowing barely rising. GDP growth also lost momentum, slowing to 0.4%y/y in July for the monthly estimate compared with 1.1%y/y in Q2 and 1.4%y/y in Q1. Against this backdrop, the Finance Ministry has cut its growth forecast to 1.5% from 2.5% for 2025 (but this is still too optimistic compared with a 1.3% Bloomberg consensus)."

"The CBR board still notes from time to time that inflation expectations remain elevated, and that risks of renewed price acceleration cannot be dismissed once seasonal effects fade. But with the policy rate still at 18%, and the economy weakening noticeably as some policymakers had been warning since the summer, pressure is on the CBR to accelerate easing. We should be looking for a 14% key rate by the end of the year."

"Regardless of the size of today’s cut, we do not expect material impact on the ruble exchange rate. We expect the ‘artificial’ c (see chart below for a 50-50 weighted exchange rate versus USD and EUR) – the ruble is depreciating, driven more by narrowing of the trade surplus and pricing-out of optimistic assumptions about the US president’s ability to stop the Ukraine war, than by monetary policy."