OREANDA-NEWS. November 02, 2009. CBR announced another 50bp cut on its key rates. The refinancing rate is now set at 9.5%, a historical low for Russia, and the minimum key one-day auctioned repo rate is 6.75%. View. Another rate cut by the CBR was widely expected by the market considering earlier guidance and the fact that CPI inflation has been zero from the beginning of August through 26 October, reported the press-centre of OTKRITIE FC.

Meanwhile, a return to economic growth in Russia is not yet a certainty, as the most recent consumption figures only indicate a stabilization of decline. Consequently, additional stimulus is very much needed.

The move is intended to encourage bank lending and a decrease in interest rates for real sector borrowers. While interest rates on loans have decreased over the past few months, banks are still hesitant to expand their lending portfolios until the risks of NPLs have diminished and the country is once again on the path to growth. Nevertheless, we believe that lower policy rates will contribute to a rebound in lending when the economy is healthier.

In addition, in the time since CBR last set its rates, the ruble has appreciated by ~RUB0.80 against the bi-currency basket while CBR bought ~US13bn in order to smooth the process. Still, we believe the 50bp cut is insufficient to make the ruble unattractive for carry traders. We believe that inflation rates will allow CBR to cut another 50bp by year’s end, and consider the policy of monetary weakening as inevitable.