USDRUB will need to rise at least to 80 for the CBR to start considering rate hikes

Russia’s central bank is expected to keep its key interest rate unchanged on Friday, putting its monetary easing cycle on hold after a rapid slump in the rouble amid mounting economic risks, a Reuters poll showed on Monday. The Bank of Russia has cut six times in a row, but all 25 analysts and economists in the poll said the central bank would now leave the rate at 6%.

The rouble has lost more than 14 percent of its value against the dollar this year in response to worries about the coronavirus and a rapid drop in prices of Russia’s main export oil. “I expect the rate to remain unchanged in the conditions when inflationary risks are rising at the same time with risks of economic downturn,” said Natalia Orlova, chief economist at Alfa Bank.

Consumer inflation in Russia was at 2.3% in annual terms in February, below the central bank’s 4% target. But the central bank warned recently that it saw significant risks of inflation picking up after the rouble sell-off. First Deputy Prime Minister Andrei Belousov said on Monday Russia should not support demand artificially as there was a risk the rouble would fall further.

Recent rate cuts by major central banks, designed to prop up the global economy amid the spread of the coronavirus, had removed the need for an emergency rate hike in Russia, said Dmitry Polevoy, chief economist at the Russian Direct Investment Fund. No rate hike was expected before the rate-setting meeting on March 20 unless there was a strong slide in the markets, said Vladimir Tikhomirov, chief economist at BCS Global Markets. “In our view, the USDRUB will need to rise at least to 80 on a sustainable basis for the CBR to start considering rate hikes,” Citi analysts said.

Russia seen holding key rate at 6% on Friday amid coronavirus, low oil, Reuters, Mar 16