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.
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.
Important information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This article is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored.