MNI CBR Preview - Sep'25: Another Key Rate Cut Expected

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Executive summary:

• The CBR is expected to continue with monetary policy easing, with ongoing benign inflation developments justifying further rate cuts.
• Governor Elvira Nabiullina has previously advised that further easing is to be approached with caution but concerns over an inflation resurgence have not been realised. 
• Among sell-side, most analysts expect the CBR to deliver another 200bp cut, but a not-insignificant minority expect a more cautious 100bp step.

At its meeting in July, CBR policymakers considered proposals to reduce the key rate by 100, 150 and 200bps. The reduction by 100 and 200bps were discussed in the most detail, with the Board eventually voting for the latter. When assessing the risk of a smaller step, it was determined that this could lead to a significant and prolonged deviation of inflation down from 4%. Meanwhile, a faster fall in realised inflation than was previously expected instead warranted a larger 200bp move. 

In her post-decision press conference, Governor Elvira Nabiullina noted that most measures of underlying inflation decreased to 4-6% while the slowdown in annual inflation prompted a downward revision to the central bank’s forecast to 6–7% as of the end of this year. Since then, inflation has remained on a more benign path – annual inflation eased from 8.14% in August from 8.79% in July, while the monthly figure fell 0.40% (Est: -0.22% M/M), marking a 3 year low for the month-on-month series. The deflation was in large part due to a fall in food prices (-0.81% M/M), which was driven by a 10.02% drop in prices for fruits and vegetables.