The Central Bank of Russia (CBR) is expected to take a pause at its monetary easing cycle on the upcoming board meeting on April 27.
While previously a moderate cut of the key interest rate was anticipated, the latest round of US Sanctions and the following volatility are likely to make the regulator more cautious in the short-term.
Out of 40 economists surveyed by Bloomberg 36 believe that the CBR will resolve to keep the interest rate flat at 7.25%.
On the March 23 policy meeting the CBR continued cutting the key interest rate lowering it by 25bp to 7.25%, in line with the dovish guidance at the previous February meeting.
Weaker ruble as result of the sanctions could worsen inflationary risks and expectations. The sharp fall in the ruble over the last month will add to inflationary pressures and will take several months to work through to changes in the rate of inflation. Annual price growth had already just started slowly crawling up towards the CBR's 4% target and the inflation-minded regulator is unlikely cut the rate in such conditions.
Alfa Bank has previously seen CBR's rhetoric as overly optimistic, and allows that the CBR could cut the rate by 25bp on April 27 not to give away its miscalculation of external risks. However, such scenario is seen unlikely given previous history of cautious moves.
Further cut of the key interest rates is seen more likely at the next meeting in June, after the appointment of the new government, possible adoption of Russian counter-sanctions, and the passing of new presidential social spending package. The outlook for key interest rate remains in 6.5-7% range by the end of 2018.