Russian Ruble: CBR pause expected as inflation risks build – Commerzbank

Commerzbank's analyst Tatha Ghose anticipates the Russian central bank (CBR) will maintain its key interest rate at 14.0% in their upcoming decision. This stance is based on the belief that inflation risks are growing and do not warrant additional easing measures, despite weaker GDP growth and rising fuel and currency pressures. President Putin has framed the high rate as a tool for stability, suggesting political factors also favor a pause, as market consensus leans toward a possible unchanged rate.

Analyst forecasts have climbed, with inflation expected to reach 6.6% by end-2026, up from previous projections of 6.2% in July and 5.3% in June. Current inflation expectations are rapidly approaching the 14% mark. While falling GDP growth numbers and decreasing survey expectations could provide a rationale for lowering rates, the combination of weak economic growth and a weakening ruble creates significant inflationary pressures.

The Central Bank's rhetoric has become more hawkish, emphasizing secondary effects from fuel price increases, the weakened ruble, and fiscal risks.

President Putin's recent comments about the high interest rate as a deliberate stability tool further support the argument for a pause in rate cuts. Despite the recent depreciation of the Russian Ruble (RUB) beyond Commerzbank's year-end targets, its value is expected to remain volatile in the short term. The impact of the US Dollar's strength on the RUB exchange rate is anticipated to be limited, regardless of the 25 basis point rate difference.