The decision on Friday will probably draw a line under an unprecedented cycle of monetary easing that more than halved official borrowing cuts in six steps since April. Rising inflation expectations and the threat of economic spillovers from the invasion will only add to caution after governor Elvira Nabiullina already signalled a pause was becoming more likely.
“The Bank of Russia may have plenty of macroeconomic reasons to continue cutting rates, but they may not be enough to ease policy at the current juncture,” Citigroup Inc. economist Ivan Tchakarov said. “The announcement of a partial mobilisation has led to elevated uncertainty, which in the past has tended to tip the scale against cutting rates.”
But inflation expectations, a key factor for policy makers, have increased for four straight months. In September, Nabiullina said she was “worried” by their recent rise.this month that the flight of foreign companies from the Russian market since the invasion in February was creating inflationary pressures as supplies of key consumer products ran short.
The future path for interest rates has become so murky that Nabiullina wouldn’t rule out that the central bank’s next move may be a hike.