09:18 AM EDT, 07/28/2025 (MT Newswires) -- The Russian central bank (CBR) cut its policy rate by 200bps to 18.0% last Friday, matching market expectations, said Commerzbank.

This move followed recent disinflationary developments where the seasonally-adjusted annualized inflation rate already reached CBR's 4% target. However, despite softening inflation, CBR maintained a neutral tone and flagged persistent pro-inflation risks on account of elevated inflation expectations, a tight labor market, and weaker terms of trade.

CBR Governor Elvira Nabiullina reinforced this cautious stance at her press conference: she emphasized that the balance of risks still points to inflation overshooting the target and noted that recent disinflation shouldn't be over-interpreted -- current inflation is still running above target in year-on-year terms (9.2% year over year). The governor views the recent softness in inflation to be due to temporary factors, including price corrections in some volatile categories.

On rate guidance, Nabiullina warned that Friday's move doesn't necessarily mark the start of an easing cycle. While further cuts are possible, decisions will remain data-dependent and may be delayed if inflation risks reassert themselves. This, of course, is routine central bank speak, stated Commerzbanl.

The bank expects the key rate to be cut once again at the next meeting by 100bps.

The revised macro forecasts support further cautious easing: end-2025 inflation is now seen at 6.0%-7.0%, down from 7.0%-8.0% earlier, and the average key rate forecast for 2025 has been lowered to 18.8%-19.6% from 19.5%-21.5%, implying a policy rate range of 14%-18% for the remainder of the year.

Still, gross domestic product and consumption projections were left unchanged, and external assumptions were worsened. Lower oil prices and a shrinking current account surplus are now embedded in the CBR's outlook.

Altogether, Friday's decision and forecast revisions don't impact the rouble's (RUB) outlook very significantly, in Commerzbank's view. As far as the artificial USD-RUB and EUR-RUB exchange rates are concerned, there could be a perception that the rouble has appreciated strongly over the past quarter -- but this would be a misinterpretation -- it's simply US dollar (USD) weakness.

Against any major non-USD currency, for example, the euro (EUR), the rouble had one good month in February 2025 when United States President Donald Trump first made his pro-Russia stance clear and optimism arose regarding the end of the war and possible removal of some harsh sanctions.

That rally aside, the rouble has just traded sideways, pointed out Commerzbank. In recent days, it did weaken slightly and this move extended on Friday -- in this sense, one could say that the rate cut, followed by the lower key rate forecast, had some impact -- but rather "modest."

Over the coming year, the bank sees the rouble depreciating "significantly" versus the USD and the euro.