Russian Ruble: CBR credibility risks after cut – Commerzbank

Commerzbank’s Tatha Ghose reports the Russian central bank cut its key rate to 14.0% despite raising its 2026 inflation forecast and projecting stagflationary macro conditions. He argues the easing cycle suggests political pressure and would normally hurt FX valuation, but stresses USD/RUB and EUR/RUB are artificial rates, so the move should not significantly affect the Ruble’s market value.

Rate cuts under stagflationary outlook

"The Russian central bank (CBR) cut its key rate by 25bp on Friday to 14.0% even after raising its inflation forecast. The outcome was not expected by the majority, but was always a scenario within the range of expectations. CBR raised its 2026 inflation forecast to 6.0%-7.0% from 4.5%-5.5%, blaming the considerable rise in fuel prices, while still claiming that inflation will return to the 4% target in 2027."

"CBR lowered its 2026 GDP forecast to 0.0%-1.0% from 0.5%-1.5%, cut the oil-price assumption for taxation to USD 60/bbl from USD 65/bbl, and reduced the current-account surplus projection to USD 48bn from USD 72bn. In short, the macroeconomic outlook is stagflationary."

"CBR appears to ex-post justify the rate cut by arguing that underlying inflation will be contained: SAAR inflation averaged 5.0% in Q2 after 8.7% in Q1 (core inflation slowed to 4.2% from 6.2%). Measures of underlying inflation reportedly continue in the 4%-5% annualised range."

"But this defence is not fully convincing. Recent inflation accelerated in June-July, reaching 5.9% as of 20 July, and inflation expectations of households, businesses and financial market participants went up. If expectations remain elevated, CBR itself admits that this may impede a sustainable slowdown in inflation."

"Still, the FX market does not like a central bank which is under political pressure to lower interest rates. In any normal market, a central bank cutting rates while raising inflation forecast would hurt credibility and weigh on FX valuation. Russia is not a normal market. USD/RUB and EUR/RUB are artificial exchange rates, and this decision will not impact RUB valuations noticeably."