Uncertainty surrounds the Central Bank of Russia (CBR) monetary policy meeting on June 15, as analysts can’t agree on if the regulator will cut rates by 25bp from current the 7.00% or leave them on hold.

At the beginning of 2018 the CBR was steadily cutting rates as part of a moderate monetary easing policy thanks to inflation’s fall to a post-Soviet record low. But since a new US Treasury Department round of sanctions on April 6 upset these plans  analysts are scratching their heads trying to figure out the central bank's next move. 

"We expect the CBR to cut the key rate by 25 bps to 7.00%, effectively taking it to the inflation-neutral range of 6-7%," Sberbank CIB wrote on June 14, while acknowledging, "that the decision is a close call." 

The forecast of the bank is based on low inflation and low risks of inflation picking up, as well as CBR's dovish rhetoric in May. However, there is a chance that the bank will reconsider its view on budget policy or the OPEC+ deal and thus leave the rate unchanged, Sberbank believes.

The bank reminds that most recently the governor of CBR Elvira Nabiullina said that normalized monetary policy is "just around the corner," which could signals a rate cut in June and rapid normalization of monetary policy in the third quarter. 

VTB Capital also sees a 25bp rate cut as a more likely outcome, but only by a slight margin, noting that the Bloomberg survey slightly favours a flat rate decision.

Additional uncertainty is introduced by the US Federal Reserve (Fed) raising its key rate by 25bp to 2%, as expected, while striking an upbeat tone on the economy and inflation. Sberbank expects Fed to have another two rate hikes by year-end, with a longer-run estimate of 2.9% for the federal funds rate. Such tightening from the Fed is expected to put pressure on Emerging Markets.

"Chairman Powell pushed back firmly against encouragement from EM policymakers for the Fed to slow the pace of its QE balance sheet reduction," Sberbank notes.