The CBR remains dovish and is expected to continue its easing policy later today with a 100bp cut to 4.5%, its lowest level since 2010 – which shows Russia’s keenness in spurring economic activity. There were talks of a smaller cut because inflation picked up as trade broke down due to the global lockdown. But, a dis-inflationary trend has started to reappear which paves the way for further cuts. Inflation combined with cuts would lead to Hyperinflation, which causes the price of normal household commodities to sky-rocket in price, and then come crashing down. As a reminder, the lower the central bank’s rate the cheaper it is to borrow money for business purposes. Generally, what happens is companies take advantage of the low-interest rate environment to take cheap loans to stimulate their businesses which in turn boosts the economic activity, pretty simple right?
In the past 5 months RUB FX Spot has sold-off 12% to 69.3 (for $1 you get 69.3 Rubles). The central bank will be hoping the cut helps strengthen the currency back to its January levels around 61.9 (for $1 you get 61.9 Rubles).