The Bank of Russia (CBR) is set to release a revised interest rate decision today, as the country looks to emerge from lockdown-induced stagnation and a lingering oil devaluation.
Reports indicate that Russia’s pandemic-induced downturn is less dramatic than initially feared, but progress is sluggish. Although the CBR has already exhausted much of its wiggle room with regards to monetary easing, the bank is widely expected to slash its benchmark—which currently stands at 4.5%—to a new record low of 4.25%. A rate reduction today would likely mark the end of the CBR’s current easing cycle.
Any subsequent cuts will likely be gradual, despite the growing likelihood that domestic inflation will fail to reach the CBR’s target of 4%. Although the pandemic and resultant partial lockdown have dealt a heavy blow to Russia’s private sector, OFZ government bonds remain popular among foreign investors, indicating sustained market attractiveness despite COVID-19. Expect the global demand for OFZ bonds to prove critical to Russia’s response strategy, as leadership intends to secure nearly $56 billion to combat a potential 2020 contraction of 6%.
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Daniel is an analyst and editor on the Current Developments team. He contributes regularly to the Daily Brief, focusing primarily on European, Middle Eastern and sub-Saharan politics.