The board of the Central Bank of Russia (CBR) resolved to cut the key interest rate by 25 basis points (bp) to 7.25% at its July 26 meeting. A minimum cut of 25bp was almost unanimously expected by the analysts surveyed by Reuters and Bloomberg, and made the second rate cut this year. 

The CBR attributed the rate cut to the continuous slowdown of inflation, although warning that inflationary expectations remain high. Slow economic growth is curbing inflationary risks, with consumer price growth possibly reaching the 4% target already by early 2020, the regulator believes.

The CBR managed to bring down inflation from double-digit readings to a post-Soviet low of 3%-5% in 2018. The inflation-minded regulator was generally inclined towards moderately loose monetary policy, but it had been thrown back by a worsening in sanctions and the external environment in April 2018. 

In June, the CBR made its first cut since March 2018, reducing the rate by 25bp to 7.5%, in line with expectations. The CBR also allowed for further rate cuts in 2019, while moving to neutral monetary-crediting policy by mid-2020.

Notably, for the second time in a row the CBR named the unsealing of the National Welfare Fund (NWF) above 7% of GDP threshold as one of the key inflationary risks. As reported by bne IntelliNews, the central bank and the government are arguing over the NWF, as part of a broader debate on how to reignite growth.

Analysts surveyed by Vedomosti daily on July 26 believe that a cut of 25bp was already priced in by the market and do not expect significant ruble movements or other market reaction. Depending on the spending position to be taken by the government, the CBR could cut the rate again by 25bp-50bp by the end of 2019, the analysts believe.

Natalia Orlova of Alfa Bank noted that the CBR remained cautious as a 50bp rate cut would have meant it sees the current economic situation as critical, which would front-load expectations for more aggressive monetary moves in 2H19. 

As reported by bne InelliNews, despite the slow start to the year, analysts generally expect improvement in the second half of 2019.