OREANDA-NEWS. February 25, 2010. CBR has decreased all of its interest rates by 25bp effective. The refinancing rate is now fixed at 8.5%, the minimum for key one-day auctioned repo rate is 5.75%, and the CBR deposit rate is now 3.25%, reported the press-centre of OTKRITIE Financial Corporation.

View: The move was widely expected by the market, especially as CBR Deputy Chairman Alexey Ulyukayev signalled a potential rate cut a day before the decision. The bank started cutting rates in April 2009, when they stood at 13.0%.

However, by 15 February 2010 annual inflation had decreased to 7.6%. Given that Russia’s economic recovery is vulnerable we believe that there is still room for an additional 100-125bp in rate cuts in order to stimulate the economy. While we do expect disinflation to continue over the coming months, by as early as this summer this trend could be reversed. Full-year inflation is expected to amount to 8-8.5%. Russian disinflation is largely based on the monetary squeeze at the early stage of the crisis.

However, according to Ulyukaev M2 growth has recovered to a 28% YoY growth level, suggesting that monetary factors will contribute to CPI growth. Another key point is that because approximately 40% of consumer goods are imported, Russia is strongly exposed to global inflation which we believe will rise this year.