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Russia’s Central Bank Surprises Everyone With Interest Rate Cut

The Bank of Russia today reversed its long-standing monetary tightening course, lowering its benchmark interest rate for the first time in six months.

The action came despite the certainl bank’s guidance just last month, which indicated little room for rate cuts in the first half of the year. Bloomberg has additional details on the surprising move:

Policy makers said on Friday they see “the possibility of cutting the key rate gradually” in the next two quarters. The one-week auction rate was lowered to 9.75 percent from 10 percent, according to their statement. That was in line with the forecasts of only eight of 41 economists surveyed by Bloomberg, with most of the rest seeing no change. Governor Elvira Nabiullina will hold a news conference at 3 p.m. in Moscow.

Not all analysts were completely caught off guard by the rate cut, however. In fact, some expect several more cuts coming in the near future:

“We expect the decision indeed does open a rate-cutting cycle, with the Russian central bank proceeding in 25 basis-point steps, while inflation numbers suggest the run rate is consistent with the target rate of inflation,” said VTB Capital economist Alexander Isakov, who predicted the move.

The central bank action may indicate that the Russian economy isn’t strengthening as much as had been hoped. The country just recently came close to ending its longest recession in almost two decades.

On the ETF side of things, the VanEck Vectors Russia ETF (NYSE:RSX) rose $0.14 (+0.67%) in premarket trading Friday. Year-to-date, RSX has declined -1.51%, versus a 4.76% rise in the benchmark S&P 500 index during the same period.

RSX currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #5 of 77 ETFs in the Emerging Markets Equities ETFs category.

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