JPM Expect CBR to Cut Rates by 200bps Next Week

On the CBR, JPM write that they expect the CBR to cut rates by 200bps at next week’s meeting.

• The main reason for the previous cut was stabilization of the local financial system, which came along with RUB bounce-back. This reasoning remains true now as well—local rates continued moving lower, while the RUB has remained under pressure to appreciate due to a strong CA surplus, even as the CBR eased some of the capital controls on residents’ flows. There is still space to reverse February’s emergency hike.
• Inflation momentum is declining rapidly. A stronger RUB and a drop in consumer demand both contributed to lower inflation momentum, JPM believe.
• Furthermore, households’ one-year-ahead inflation expectations dropped sharply to 12.5% in April from 18.3% in March. The consumer apparently believes that the RUB-related price shock is already over and, likely, was a one-off adjustment.
• Lower inflation and inflation expectations open space for more decisive policy easing in their view. They now expect the CBR to cut 200bp to 15% next week vs. 100bp previously.
• JPM expect the key rate to be in the 12%-13% range by year-end, although much will obviously depend on how geopolitics evolve.