The Russian central bank (CBR) delivered a smaller interest rate cut on Friday than the median consensus estimate of 200bp (it cut by 100bp from 18% to 17%). Nearer the time of the meeting, expectations were, in fact, swinging towards the dovish-end of the spectrum because news about a downturn in the real economy were abounding. Prior to that, a rate cut by 100bp would have been a reasonable base-case, Commerzbank's FX analyst Tatha Ghose notes.

USD/RUB and EUR/RUB to continue to rise

"Trends in the real economy are somewhat conflicting: on the one hand, growth in the first seven months of 2025 has averaged near the lower end of the central bank’s 1%-2% projection for the year. On the other hand, Governor Elvira Nabiullina noted on Friday that, after seasonal adjustment, demand had been stronger in Q2 than in Q1."

"Whatever the correct picture, CBR remains hawkish. The MPC statement noted that underlying measures of current price growth have not changed significantly, hence the CB needs to maintain monetary conditions as tight as possible in order to return inflation to the target during 2026. This is consistent with Governor Elvira Nabiullina’s earlier assessment that inflation was only appearing to cool because seasonally anticipated price moderation happened to arrive early this year. Nabiullina’s remark from Friday clarifies on what CBR’s concern truly is."

"At this time, it is difficult to see why the economy would turn around in the months ahead. We may find month-on-month inflation indicators remaining sideways, but the real economy continuing to decline further. In this scenario, we would anticipate another 100bp rate cut at the 24 October CBR meeting. The outlook further out will remain a question mark. But in conclusion, it no longer appears likely that the key rate can hit 14% by the end of this year. This is a modest revision of outlook towards hawkish. Still, we forecast the ‘artificial’ USD/RUB and EUR/RUB exchange rates to continue to rise, especially in the event that the US and EU announce new harsh sanctions on Russian oil in the wake of last week’s incident in Poland."