​CBR cut the key rate by 300 bps, and Minfin is likely to resume borrowing

RUSSIA ECONOMICS - In Brief 26 May 2022 by Alexander Kudrin

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Today, at the extraordinary BoD meeting, CBR decided to cut the key rate by 300 bps to 11%. As we wrote yesterday, this move was anticipated amid rapidly decelerating inflation and slowing consumer lending. Moreover, a further cut in June is also likely. This step will inevitably push down interest rates on retail deposits further. At the beginning of March amid an increased key rate, households opened deposits with interest from 15-20% for 3-6 months. Within the next three months, people should think again about whether to rollover deposits or not. We suppose that the regulator believes that part of this money will end up on the FX market, which will help move the exchange rate from an abnormally strong level to a more reasonable one. Besides that, the OFZ yields in the long part of the curve have moved to a single-digit territory (10-year paper trades at 9.25%). The current level looks acceptable for Minfin to borrow from the public market. The latter may become necessary if the recent announcement that social expenditures will increase by R1.6 trln in 2022-23. Hence, we don't rule out Minfin resuming OFZ issuance despite previous statements not to do that. Evgeny Gavrilenkov Alexander Kudrin