A gradual path of rate cuts from the CBR appears justified following the real sector data last week that suggest tentative signs of bottoming. Barclays notes that oil (Brent) in RUB terms has fallen 8% since the end of June, which will further pressure fiscal accounts and the growth outlook in Russia. Therefore, Barclays expects the CBR to cut by 50bp to 11.0% at the 31 July meeting and estimates the GDP growth will decline by -4% in 2015.



The CBR has cut during the past four meetings by 100-200bp for a cumulative 550bp. At the previous meeting, the CBR signaled that it will slow the rate of cuts during upcoming meetings and did not rule out possibly holding depending on the data.



he inflation rate remains high at 15.3%, most of this inflation is old news from Q1. During Q2 prices increased only a bit over 1% (4% annualised). Furthermore, the CBR forecasts that inflation will decline to about 7.5% by mid-2016, notes Barclays. Thus real rates remain very high and there is further room to cut. The reason for restraint is that utility price hikes in July (average of 7.5%) and recent RUB weakness could put some upward pressure on inflation and possibly negatively influence expectations, adds Barclays.