The Central Bank of Russia resumed its monetary easing cycle after skipping a cut at the last meeting due to a food price shock and cut the key interest rate by 50bp to 8.5% at the key policy meeting of September 15, the regulator said in a closely watched press-release to be followed by a press-conference by the CBR governor Elvira Nabiullina.

"The board of directors [of the CBR] notes that inflation is close to 4% and the economy continues to grow," the press-release reads.

The rate cut was seen as a "done deal" by the analysts as the CBR has triumphed over inflation and managed to curb the CPI to the lowest in post-Soviet history, overshooting the end of year 2017 target of 4% already.

Nevertheless, the CBR remains cautious and noted that inflationary expectations remain, albeit declining, have not yet stabilised on low levels, while the medium-term inflationary risks remain. 

Gazprombank expected the rhetoric to remain cautious, noting that many disinflation factors remain out of the CBR's control, such as US dollar depreciation on global markets and rising oil prices. Oil prices have surged in the last week and the cost of a barrel of Brent was $56 on the day of the cut, thanks to upgrades in global demand by both OPEC and the International Energy Agency. 

The regulator also said it will continue the "moderately tight" monetary policy, but does not exclude further cuts of the interest rate in the coming two quarters. 

VTB Capital on September 13 reminded that the CBR in the past  was "reluctant to pre-commit to a defined course of action" and the wording on the monetary policy indeed has not changed.

However, the bank expected the CBR to extend the policy forecast horizon, which could mean more scope for monetary easing, or higher tolerance to transitory price shocks. This also did not happen as the CBR maintained the horizon at two quarters.

The government that set an ambitious 2% GDP growth goal for 2017 and 2018-2020 was encouraging the CBR to lower the interest rates. The cut will help bolster growth that came in at a higher than expected 2.5% in the first half of this year and the Ministry of Economy recently upped its froecast for the full year to 2.1% GDP growth from 2.0% previously. 

The Minister of Economic Development (rumored to be Kremlin's new economic policy vehicle) Maxim Oreshkin saying on cabinet's meeting with President Vladimir Putin that inflation currently being 1pp below the target is a "signal for the regulator to cut rates".

Moving forward, an environment of lowering interest rates in widely expected. Alfa sees the key rate cut to 7.5% in 2017. VTB Capital expects 7-7.5% key interest rate by the end of 2018.

More comments will be anticipated, but Nabiullina on September 8 said that she sees room to cut the key rate and estimated a nominal equilibrium rate at 6.5-7% percent.

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