CBR Preview - Greenhouse Effect: CBR Set to Cut 25 bps on Friday, in September
Nothing has materially changed since we forecast a 25 bp cut to the key rate at the beginning of the month. If anything, the case for a cut has grown stronger. June inflation came in surprisingly low, while food inflation so far this month has been quite subdued. The weak inflation is what has been pushing the CBR toward accelerating cuts, in our view. This has a lot to do with improvements in agriculture in recent years, particularly increased and more effective use of greenhouses, which appears to have changed the seasonality of food prices. Meanwhile, on the whole CBR officials have continued to lead us and the market to believe that a 25 bp cut to 7.25% is forthcoming on Friday. We think that two cuts in 3Q19 to 7.00% is almost a done deal; the big question is where the CBR sees the neutral long-term key rate.
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