The Central Bank of Russia on the March 23 policy meeting of the board continued cutting the key interest rate lowering it by 25bp to 7.25%, in line with the dovish guidance at the previous February meeting.

The move was widely expected by the analysts, although some suggested that the regulator could make a more aggressive move on higher oil prices outlook or instead refrain from rate cut given potential inflationary pressures from high nominal salary growth and weak ruble.

In an accompanying press release the CBR as usual highlighted existing risks of future rise in inflation. However, the regulator reiterated its view that it intends to bring its benchmark rate to "normal levels" in real terms by the year-end. 

"In CBR's language the latter means 2.5-3% real rate which means that the actual rate will be linked to the level of inflation at the time," BCS Global Markets commented on March 23, reiterating the 4% forecast for 2018 inflation.

The analysts therefore believe that CBR's key rate could go down to 7%, a "mere 25bps down from where the rate stands today."

BCS expects the CBR to deliver another 25bp rate cut before mid-year, at one of the two meetings either on 27 April or 15 June, and then expects the regulator to take a pause until September to see how inflationary dynamic unfolds during the crucial harvest period of August-September.

Prior to the CBR decision, five of the top 10 Russian banks have lowered their ruble deposit rates by 10-65bp. Deposit rates at the ten largest Russian banks now don't exceed 7.45%. Analysts surveyed by Vedomosti believe that the deposit rates will keep following the key interest rate and could decline to 5.5-6% by the end of the year.