The board of the Central Bank of Russia (CBR) decided to maintain the key interest rate at 7.75% at the policy meeting of March 22, while lowering inflation guidance for 2019 and allowing for monetary easing later this year.

The hold decision and more dovish policy guidance was expected, as all of the analysts surveyed by Vedomosti daily, Reuters, and Bloomberg previously bet on the CBR maintaining the rate.

In the second half of 2018 sanction pressure got the CBR off the monetary easing path and it adopted a policy "better hike a little now, than much later". The regulator made two front-loaded minimal hikes of 25bp in September and December 2018.

But a favourable start of 2019 reopened the window for lower interest rates. The inflation-minded CBR acknowledged that inflation is trending below its forecast and that inflationary expectations of both the population and the businesses have notably declined, while the recent VAT hike has already fed through the price growth. 

The regulator has thus updated the inflation guidance for 2019 downwards from 5-5.5% to 4.7%-5.2% for 2019 and noted that should the forecast be realised rate cutting is possible in 2019.

BCS Global Markets wrote ahead of the meeting that inflation would be "the key factor that will frame the bank’s decision tomorrow to hold the rate."

"With inflation at the low end of expectations, crude oil at comfortable levels and many geopolitical issues still in limbo, we expect the rate to be held until 4Q19 when, following deceleration in inflation, it may be cut by 25bp," BCS GM wrote on March 21.

With the CBR guiding for key interest rate cut, the analysts surveyed by Vedomosti believe that the key rate could be cut starting with the third quarter of 2019. Some, however, warn that in the past the market's reaction had overshot rate cut decisions, which might prompt the central bank to remain cautious and keep the rate flat.

As analysed by bne IntelliNews, even with softer rhetoric and guidance sanction risks and external conditions will remain the major factor in 2019 and will remain the go/no go factor for monetary easing.

Bankers surveyed by Vedomosti believe that after increasing the deposit rates throughout 2018, the commercial banks are now likely to start cutting first the deposit rates and then credit interest rates, starting with the second half of 2019 and given absence of any macro shocks.

Shortly after the CBR meeting Russia's largest bank Sberbank has already brought the maximum deposit rate down by 1.9pp to 5.75% annually (compounded 6.26% for three-year "Save Online" deposit of minimum of RUB0.4mn) and other banks could follow suit.